Brewin Dolphin Plc – FY Results

Share Price 341p

Mkt Cap £1,036m

Conflict Disclosure: No Holding

  • Results Discretionary net inflows of 3.7% over the year is below historic targets and many peers. Revenue grew 3.1% to £339m while operating profits adjusted fell 4.2% to £73.4m. Adjusted PBT was down 3.2% to £75mand adjusted EPS down 5.5% to 20.5p. Outlook refers to laying the foundations for long term growth.
  • Estimates Results appear in line with expectations and I am not seeing any reason to change from the existing 17% increase for Sept 20 driven by the acquisition of the Irish business.
  • Valuation PER 17X, Yield 4.8%.
  • Conclusion The business is ex growth and so dependent on acquisitions for future growth. Structurally wealth managers are hard to grow while pricing pressures increase and regulatory burdens increase. Last year capex was £15m (£8.2m in 2018) which compares to depreciation and amortisation of £3.9m. The assets in this market remain to expensive to earn a high ROI and in this period of investment it is hard to see a persuasive case to own the shares.

Appreciate Plc – H1 Results

Share Price 48p

Mkt Cap £89m

Conflict Disclosure: I Hold

  • Results Billings increase of 9.3% in corporate and 12.5% in consumer is strong relative to recent years.  Revenue growth of 23.8% is also strong while cash balances are flat at £211.8m. Cost guidance remains at £2m for the current year for implementing the new strategy. In terms of the 4 pillars of the strategy it seems the investment is going in, the hampers have been separated, technology investment is going in and the new product is being trialled.
  • Estimates A reduction in profits to £11.7m is expected for the current year followed by 15% growth in 2021.
  • Valuation PER 9.4X Yield 6.7%.
  • Conclusion  I had been really hopeful that the new product launch across such a strong platform with an embedded customer base could be transformational. The new product is a gift card which appeals to millennials which enables a personal story to be shared with the recipient. Perhaps that explains the name change from Park Group. I doubt very much this will excite investors, as millennials are not the major force in investment markets. At least the shares are very cheap and trading is strong.

STM Group Plc  – Trading Update

Share Price 43p

Mkt Cap £26m

Conflict Disclosure: I Hold

  • Update Relaunch of the Carey pension products has taken longer than expected and the Master Trust application took longer than expected. New business in pensions is slower than expected. The trust and non core companies have also been slower than expected. It costs are going up. PI costs are increasing by more than £0.5m and there are professional cost increases.  However, the board is confident in the strategy.
  • Estimates PBT is expected to be £3.8m reported and £2.5m underlying from £23m revenue. Existing forecasts anticipate £4.1m in 2019 PBT and a 10% increase in 2020. This looks like a 40% downgrade.
  • Valuation If we reduce EPS underlying by 40% we get 3p EPS which puts the shares on 14X.  The dividend of 2.2p is still covered and would represent a 5.1% yield.
  • Conclusion This is a clean sweep of disappointments, and may call into question the acquisition strategy given the strong balance sheet. However, the core QROP and SIPP revenues remain resilient, the balance sheet is strong, and the company is profitable.  These safeguards suggest there could be a positive result for shareholders in the end, and so it goes into my “buy on the warning” box. I suspect it could get to 35p or lower today.

jeremy@charltonillingworth.co.uk