Randall & Quilter – Revisit

Share Price 208p

Mkt Cap £407m

Conflict Disclosure: I Hold

  • Revisit The shares have risen 12% in the last couple of days on no news save a tip in the Telegraph last week. So it may be worth checking the valuation
  • Estimates In the year to December 2019 PBT is expected to be £41.2m which is entirely from the legacy insurance run off contracts. The program business is not yet contributing to profit. In 2020 this is forecast to decline to £38m as legacy contracts have been busy this year and less are anticipated next year.
  • Valuation The NAV is £302m so the shares now trade at a 32% premium to book value. Stripping out goodwill moves this to a 54% premium to book value.  The company is anticipated to make a 11.5% ROE this year.  If we say the legacy book is worth the NAV of £300m then we are paying £100m for the program business. The company states it expects $1bn of premium income to be put through the program business in 2020. At say 4% commission this would be perhaps £32m of revenue so this implies 3X predicted revenue, which is perhaps about right in the short term, although we may expect the business to grow more than that in the medium term.
  • Conclusion Whether it is the Telegraph tip or the fact that Brexit, from which RQIH’s program business will benefit I am not sure. But the shares have run strongly last week and in the short term may be up with events.  But for those with a medium term perspective these gyrations don’t matter.

Ramsdens Holdings – H1 Pre Close

Share Price 193p

Mkt Cap £60m

Conflict Disclosure: No Holding

  • Update. H1 is reported to be “in line” with expectations. The company has also liquidated some stock to take advantage of the high gold price generating a one off £600k profit. The Money Shop stores acquired are reported to be trading well and the company says it continues to appraise acquisitions in this fragmented market. Outlook is confident.
  • Estimates £7.6m PBT is expected for the year to March 2020 which is EPS of 19p. Including the one off stock profit would add 8% to this. 12% earnings growth is expected in the following year to 21.3p EPS, £8.6m PBT
  • Valuation PER 10.2X March 2020, falling to 9.1X March 2021. Yield 3.1%. ROE is now 17.5% and the shares trade at 1.9X book value
  • Conclusion  All the stars are aligned for the pawnbrokers. Consumer demand, high gold prices, competitors disappearing etc. The shares have gone sideways since early 2018. The last bit of this cycle is the market mistaking this for a growth business and rating it accordingly.  There is more to come.  If it got to 12X the share price would be 250p.

Argentex Group – H1 Trading Update

Share Price 140p

Mkt Cap £158m

Conflict Disclosure: No Holding

  • Update Underlying revenues for this recently listed forex company were up 45% to £13.8m in the 6 months to 30 September. Performance was driven both by client numbers and currency volumes. This is said to “re inforce”confidence in full year estimates.
  • Estimates Forecasts to March 2019 seem to anticipate 20% revenue growth to March 2020 to £26.2m. Having delivered 52.7% of the full year number in H1 this looks very modest. Upgrades can be expected.
  • Valuation Per to March 2020 is 21.2X and yield 1.4%. 34% PBT growth is anticipated in the year to March 2021 bringing the rating down.
  • Conclusion Having come to market in June at 106p the shares are up 32% from IPO. Alpha FX trades at 29X June 2020 and Equals trades at 15.6X Dec 19. This FX space is a hot area and there is a way to run for all of these yet.

jeremy@charltonillingworth.co.uk