Chart of The Week

The derating of UK Equities relative to ROW equities is evident in the chart below.  I wonder if we will all be discussing the “Brexit Bounce” early in 2020.

Platforms

  • After Charles Schwab eliminated commission from its share dealing forcing TD Ameritrade to follow suit Schwab is now said to be close to acquiring TD Ameritrade at a price of 5X revenue.  Given the revenue multiples UK platforms trade at that unexciting
Price Mkt Cap Revenue Multiple
(p) (£m) (£m) X
Hargreaves Lansdown 1,758 8,336 530 15.7
Intergrafin 395 1,308 99 13.2
Nucleus 133 102 48 2.1
AJ Bell 400 1,637 104 15.7
  • However, it does underline that price competition may be closer to arriving from the US. Robinhood Markets, the zero commission trading platform got its UK license in August. They have said they intend to IPO at some point as part of a wider plan to become a full-service finance company. Commissions may be a thing of the past, rather like wealth management in big bang.

Brooks Macdonald – Acquisition and Placing

Share Price 1825p

Mkt Cap £254m

Conflict Disclosure: No Holding

  • Acquisition of Cornelian Asset Management in Edinburgh for up to £39m of which £30m will be financed by placing shares. AUM is £1.4bn, so the price equates to 2.8% of AUM. Revenue yield on AUM is 73bps and EBITDA margins 33% so the price equates to 3.8X revenue and 11.4X EBITDA. Cost synergies are expected to be £3.75m which will more than double the profits from Cornelian.
  • Estimates On a post synergy PE of 7X the EPS accretion is 9% despite issuing shares to fund the acquisition.
  • Valuation PER 13.1X Yield 3.2% before the 9% earnings enhancement.
  • Conclusion  Coming out of a period of restructuring and consolidation it is good to see Brooks back on the front foot.  The share could do well over the next couple of years and are cheap, as they always are after a period of restructuring.

Record Plc  –H1 Results

Share Price 41p

Mkt Cap £81m

Conflict Disclosure: No Holding

  • Results Net inflows of 3.5% in the 6 month period drive the increase in AUM to $59.9bn. Management fees declines 3% to £11.1m and these were no performance fees. Operating margin declined to 27% (2018 32%) delivering PBT £3.2m (2018 £4m). The outlook refers to confident of making further progress in the current financial year in terms of AUM.
  • Estimates FY PBT is expected to be £5.9m which appears comfortable given £3.2m in H1.
  • Valuation PER is 16.8X and yield 5.7%.
  • Conclusion The multi strategy product now has a long term performance record, and the company reports an encouraging range of new business opportunities balanced against fee pressure. This is a period of investment and at £81m mkt cap is starting to re appear on radar screens. Looking interesting after 8 years out in the cold.

jeremy@charltonillingworth.co.uk