Hits: 15

28 May 2020

Charles Stanley  – FY Results

Share Price 274p

Mkt Cap £141m

Conflict Disclosure: No Holding 

  • Update AUMA down 16.2% over 12 months and revenue up 11.5% to £173m. Underlying PBT up 45% to £19.3m representing a 11.7% margin. EPS up 47% to 31.4p and DPS of 9p for the full year (+3%). Cash £93m. Outlook is positive beyond the challenges posed by COVID 19 and markets. It anticipates short term challenges will significantly reduce revenue. Investment management delivered a 15% operating margin, Charles Stanley Direct 16.8% but financial planning continues to lose money. The loss in planning is said to be the result of hiring planners that take up to 24 months to reach full productivity. 
  • Estimates  Results are in line at the revenue level but the £19.3m PBT is significantly ahead. A 6% revenue decline in 2021 is currently forecast which given the company expects a “significant” impact on revenue from COVID 19 looks too high. 
  • Valuation PE 15.3X. Yield 3.4% on current forecasts. On EPS just delivered PE is 8.7X. If we assume £160m revenue and impute the 15% target margin we get £24m PBT which is c 38p EPS. PE is 7.2X potential which may take 2 years. 
  • Conclusion The arduous road to 15% margins now looks visible and its down to the financial planners. 8.7X historic results is too low. Brooks Macdonald trades at 13X. That’s 50% higher. The 13% rise in IPF yesterday makes me wonder if value could possibly matter once again.

14 January 2020

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Charles Stanley – Q3 Update 

Share Price 303p

Mkt Cap £154m

Conflict Disclosure: No Holding

  • Update AUM up 2.8% over the 3 months to December to £25.3bn. Net outflows were 1.2%. Revenue was up 14% to £42.7m. No mention of margins. The outlook statement merely refers to revenues benefitting from higher trading volumes and repricing.
  • Estimates 9 month revenue is £128.1m which is 77% of the full year revenue estimate of £167m. If margins are progressing too we could have the first upgrade in a while as we get to the year end.
  • Culture What has been a very traditional environment run for the benefit of the employees looks like it is starting to change.
  • Valuation PER 15.1 Yield 3%.  The 15% margin target would imply profits some 90% higher than the current year which makes this potentially very cheap.
  • Conclusion With progress now coming through there is perhaps 50% upside over 12 months to 2 years, but beyond that it is hard to see it as a growth stock.

21 November 2019

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Charles Stanley – H1 Results

Share Price 255p

Mkt cap £130m

Conflict Disclosure: No Holding

  • Results FUMA increased 2.1% over 6 months to £24.6bn while Discretionary AUM were up 6.1% to £13.9bn. Revenue margin was 70bps, up from 62.9bps benefitting from re pricing. Total revenue £85.4m. PBT increased 71.9% to £9.8m which is an operating margin of 11.2%. Outlook is confident of achieving a sustainable improvement in underlying profitability.
  • Estimates Estimates for the full year anticipate £11m PBT from Revenue of £158m, a margin of 7.5%. This has been blown away by the £9.8m PBT achieved in H1, driven by strong revenue and higher margin.
  • Valuation On existing forecasts the company trades on 14.2X and yields 3.5%. If we used a revenue number of £180m and imputed the target 15% margin we get £27m PBT. That is cheap for £130m mkt cap.
  • Conclusion After a few years of failing to deliver this now looks like they could get there.

10 July 2019

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Charles Stanley – Trading Update  

Share Price 276p

Market Cap £140m

Conflict Disclosure: No holding

  • Update AUM increased 1.2% over the quarter to £24.1bn which includes net outflows of £0.6bn (2.4%). Discretionary AUM grew 3.1% while advisory and execution only fell.  Revenue for the quarter was up 5.9% to £41.5m
  • Estimates The looks modestly ahead of the anticipated 4.7% revenue increase for the year to March 2020 while the improving margin is expected to deliver 27% PBT growth to £12.7m
  • Valuation PER 15.2X Yield 3.4%. Price/Book 1.32 and ROE of 8.8%
  • Conclusion The company continues to make progress towards the 15% margin target. That would equate to £24m PBT, close to double this years forecast. That would be c 40p EPS putting the company on 7X its target.  This is cheap but when it gets there (which isn’t without difficulty) it then isn’t a business with growth.   There is some upside but also some risk.

31 May 2019

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Charles Stanley  – FY Results 

Share Price 317p

Mkt Cap £161m

Conflict disclosure – No holding

  • Update Revenues of £155.2m are up 2.8% with growth across all divisions. PBT is up 6.4% to £11.6m which is a margin of 9.2%. EPS is up 3% to 17.74p and the dividend up 9.4% to 8.75p.  Cash is now £81.2m. Post year end the group announces a new restructuring over a 2-3 year period with restructuring costs of £9.5m to produce annualised cost savings of £4.5m from 2022 onwards. The original 15% profit margin target is re-introduced for the “medium term”. Divisionally both asset management and financial planning remain loss making while Charles Stanley Direct recorded a £1m profit.
  • Estimates  Consensus anticipated £149m revenue and £10.4m PBT so this is a useful beat. The 2021 forecasts currently anticipate a 10% margin on £166m revenue. Adding todays £4.5m of annualised cost savings to this gives a 13% margin, so within shouting distance of the 15% target. Adding the £4.5m in 2021 (which agreed is a year early) gives a 27% upgrade to 32p of EPS.
  • Valuation This is a PE business rather than EV/AUM currently. If we believe in the 32+p EPS in a couple of years time the shares trade on just under 10X which may be 50% too cheap in 2-3 years time.
  • Conclusion  The task of rationalising this business is not an easy one. Illustrated last week by the citiwire article https://citywire.co.uk/wealth-manager/news/charles-stanley-head-of-investment-management-exits/a1231811. If you click on the reader comments the comments from such as “Dark Destroyer” and “Nast Niff” illustrate the internal mood.  The company says that staff costs amount to 72.9% of core business expenditure which implies £105m so 67% of core business revenue of £155m. This should be closer to 50%. In investment management direct staff costs are 46% of revenue, That is 43% in asset management, 89% in Financial Planning and 19% in Charles Stanley Direct while allocated costs amount to £50m which suggests a lot of the issue is in the central functions.  I suspect management have the ability to achieve the margin target but it won’t be easy. There is 50% upside for completing the task.

9 May 2019

Charles Stanley – Restructure 

Share Price 275p

Mkt Cap £139m

Disclosure: No holding

  • Restructure The company announces it is simplifying its operating model in order to achieve the goal of 15% operating margin. A single back and middle office is being adopted and processes are being simplified. This sounds like an IT project although the statement doesn’t specifically say that. It does say that the Head of Investment Management, Head of Asset Management and MD of Charles Stanly Direct jobs are at risk.
  • Estimates Forecasts for the March 19 year end assume a 7.1% PBT margin.   If markets had visibility on a 15% operating margin that id double the current profitability
  • Valuation PER 16X Yield 3.4%
  • Conclusion A couple of years ago this looked exciting as management unveiled the 15% operating margin. That target was delayed as it took longer than expected to restructure the remuneration. Todays announcement rekindles the hopes of achieving the margin target.  If it is at all realistic there is considerable upside.

11 April 2019

Charles Stanley – Trading Update 

Share Price 277p

Mkt Cap £141m

Disclosure: No holding

  • Results FuMA was up 5.7% over the quarter to £24.1bn.
  • Estimates March 20 forecasts look for 1% revenue growth but 20% earnings growth despite the fact that margins are expected to be under 10%.
  • Valuation PER 14.9X yield 4.0%
  • Conclusion The company’s 15% margin target remains elusive. With the company achieving 8% ROE its hard to see the attractions.