M J Hudson – Pre Close Update

Share Price 59p

Mkt Cap £100m

Conflict Disclosure: No Holding

  • Update H1 revenues are £10.4m. Organic growth was 7%.The company acquired an ESG reporting business in July 2019 and the acquisition of Anglo Saxon Trust is expected to complete in the next 2 months. The board is confident that trading is in line (which is handy when the IPO was 12 December).
  • Estimates June 2020 house broker estimates £22m revenue, £4.1m EBITDA and £1.2m PBT. Net cash post IPO is expected to be £24.7m. Pro forma EBITDA pre investing costs is said to be £5.2m in June 2019. With £10.4m revenue in H1 that leaves an increase of £1.2m from H1. Perhaps half of that may come from The ESG acquisition and with AST scheduled to complete in H2 the organic targets look undemanding.
  • Culture I look forward to meeting this company.
  • Valuation EV/Revenue 3.4X. PE big. EV/EBITA 24X, but pre investing costs lower, perhaps below 13X.
  • Conclusion With 3 divisions of advisory, outsourcing, and data and analytics the business is unique. In the seemingly endless world of regulatory hosepipe squeezing it seems to me that the pricing pressure is moving from the brokers to the fund managers and the fund suppliers are further up the chain. This could be a good place to be as the data and analytics may be where the pricing power is over the next few years. But it is priced accordingly. It looks like 6 months until we get upgrades so hard to see short term excitement here.

City of London Investment Group – Trading Update

Share Price 442p

Mkt Cap £117m

Conflict Disclosure: No Holding

  • Update AUM up 4.6% in sterling over the 6 months to December. Net inflows were $182m (3.3%) and encouragingly the company has visibility on a further $200m of inflows to fund in the next quarter. Fees averaged 75 bps. PBT is estimated to be £6.3m in H1, 21% up on the prior year. 10% increase in the interim dividend
  • Estimates PBT of £11.7m is anticipated for the full year. Having delivered 54% of this in H1 and with visibility on H2 inflows this could be perhaps a 10% upgrade for FY.  
  • Culture With Barry Oliff having now retired it will be interesting to see if the culture evolves from what has traditionally been run tightly in the manner of an owner managed business.  
  • Valuation PER 12.2X, Yield 6.1%.
  • Conclusion With upgrades and management change the company could be in danger of becoming a growth stock. I also quite fancy emerging markets could have a good year this year. With a 6% yield this is one to own.

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.

Gateley – H1 Results

Share Price 211p

Mkt Cap £242m

Conflict Disclosure: I Hold

  • Results Revenue up 11.8% to £51.8m. PBT up 10.2% to £5.5m. EPS up 10.1% to 3.92p. Net debt down from £6m to £2.1m DPS up 11.5% at the interim stage. Outlook is confident to deliver in line.
  • Estimates To April 2020 £109.8m revenue is anticipated which is 6% growth on the prior year. 11.8% revenue growth has been achieved in H1. A 17% operating margin is anticipated providing 20% PBT growth. With a further 10% increase in fee earners in H1 the 6% revenue growth looks like there is room for upgrades.
  • Culture Reassuringly dull.
  • Valuation PER 15.2X, yield 4%.
  • Conclusion With a strong pipeline of acquisitions and recent hiring combined with low estimates the company can continue to deliver in an understated way over time which could result in rating upside over time as well as strong earnings growth.  With 8% earnings growth forecast after the current year perhaps there may be 20% upside on the shares.

jeremy@charltonillingworth.co.uk