Bonds

  • It seems the best time to be long of bonds was 1981, when few pension funds were.  Now would not seem to be a good time to be long of bonds.  In 2000, in aggregate 70% of UK pension funds were invested in equities, having peaked at 80% in 1993. By 2014 this figure was down to 44%. According to the Pension Protection Fund this number was 55.7% in bonds by 2017. Ross Goobey set the trend by following a strategy of 100% investment into long dated AAA sterling fixed and inflation linked bonds.
  • I am sure these pension funds investment policy is a safe one. But risk and return are inversely correlated, or so I was once taught.

Forex Companies – M&A

  • M&A Yesterday Santander acquired a 50.1% majority stake in Ebury for £350m.  This is part of Santander’s digital strategy. Ebury is a UK founded foreign exchange firm operating across 19 countries.
  • Valuation Ebury’s accounts at companies house show £66.8m revenue in the year to April 2018 and an adjusted loss of £11.3m. So the valuation of £700m represents 10X revenues. The UK quoted forex providers are also relatively highly rated.

Company        Price                 Mkt cap             Revenue           M.Cap/Rev

  • Alpha FX        1085p               £403m              £29.3m             13.7X
  • Argentex        154p                 £174m              £21.9m             7.9X
  • Equals Group  86p                 £153m              £28.7m             5.3X
  • Conclusion Forex seems to be the new banking entry point as international payments is becoming the way to harvest these high value international trading businesses, which are probably more profitable than harvesting millennials. We could yet see more banks acquiring these businesses in an effort to adopt a digital strategy, which could support valuations. 

jeremy@charltonillingworth.co.uk