• An indicator of the death throes of capitalism appeared yesterday as the Pensions Regulator fined the FCA for pensions failings. The maximum find was levied of £2k.
  • Integrafin announced the placing by accelerated book build of 8.5 million shares by Michael Howard completed at 475p, very close to the 478p screen price.

Mortgage Advice Bureau– Trading Update

Share Price 696p

Mkt Cap £359m

Conflict Disclosure: No Holding

  • Update Revenue up 16% to £143m. Organic growth is declared to be 10% driven by a 14% increase in average adviser numbers. Revenue per adviser fell 3%. PBt is expected to be in line with expectations and cash was £21m, of which £7m is unrestricted.
  • Estimates A 16% increase in PBT is expected to Dec 2019 to £18.1m. This is expected to accelerate to 24% in 2020 which is £22.4m PBT. EPS 35.8p. Dividend 29.2p
  • Valuation PER 19.4X Yield 4.2%
  • Culture A glass door score of 4 evidences a positive culture while the CEO pay was £499k
  • Conclusion I have stressed the earnings this year to find the flaw and have failed. As long as the company continues to expand its network the company continues to be a growing cash generator. That looks unlikely to change, and may be helped by better housing markets this year.

SimlyBiz – Trading Update

Share Price 234p

Mkt Cap £226m

Conflict Disclosure: No Holding

  • Update Full year revenue is up 24% and EBITDA up 50% achieving a margin of 27% (2018 23%). Organic growth has also been delivered, defined as growth excluding acquisitions. Net debt is £27m representing under 1.6C EBITDA. Outlook say directors are confident that overall performance is broadly in line with expectations. The board is confident and optimistic.
  • Estimates a 28% revenue increase was expected to £65m and a 45% EBITDA increase to £16.6m so revenue looks a little behind but EBITDA a little ahead so the operating margin of 27% is ahead of expectations.  
  • Valuation PER 18.7X yield 1.8%. EV/EBITDA 15X
  • Culture The company scores well on Glassdoor reviews at 4.4 out of 5 as a good place to work in Huddersfield. CEO’s remuneration of £308k is not excessive.
  • Conclusion The Defaqto acquisition looks to be a very good one despite the 14X EBITDA multiple paid for the business. With 41% operating margins and cash generation being proven the shares could continue their re rating.

jeremy@charltonillingworth.co.uk

  • There was a loud sound of stable doors closing last week as the FCA wrote to fund managers outlining the risks of liquidity, conflicts of interest with ACD’s, and governance.
  • Randall & Quilter acquires a Montana Captive. No price or NAV is disclosed. The statement says the company has a strong pipeline and looks forward to closing more transactions in “coming weeks”.

Amigo Holdings –  Strategic Review

Share Price 68p

Mkt Cap £323m

Conflict Disclosure: No Holding

  • Statement Richmond Group (the 60.7% shareholder) is a willing seller and so the company has launched a “strategic review”. The company confirms trading is within guidance for loan book growth and impairments to Dec 2019. Bids are to be submitted by 17 February.
  • Valuation I don’t recall seeing a company trading on a PER of 4.3X and yielding 14% being put up for sale by its majority shareholder before. Price/NTAV is 1.3X.  The only quoted comparator is NSF which trades at 1.7X Price/NTAV with a PER of 7.5X yielding 10%.
  • Conclusion Perhaps NSF may have a look but I imagine the CMA may need to be involved if NSF was to bid for the largest player in the guarantor loans market hampering their chances.  Private equity is the natural buyer but with the regulatory uncertainty over the sector the price is unlikely to be glamorous. Notwithstanding that a PER of 4.3X is a low starting point. The shares could double without looking expensive. But investors at 275p in the July 2018 IPO may feel duped.

Gresham House Plc– Trading Update

Share Price 650p

Mkt Cap £181m

Conflict Disclosure: I Hold

  • Update This company doesn’t give quarterly updates so the period covered is 12 months to Dec 2019. AUM was up 20% to £2.75bn. Financial performance is “in line”.
  • Estimates £28.7m revenue is expected for 2019PBT of £7.8m to Dec 2019 delivering £9.2m pre tax profit and 27.5p EPS.is expected, growing to £9m in Dec 2020. EPS 8.7p and a 5.2p dividend. The total dividend for 2019 is expected to be 5p, ahead of the 4.8p forecast.
  • Valuation EV/AUM 5.8%. PER 23.6X Yield 0.6%. Expensive but cheaper than Impax on 31X.
  • Conclusion The bulk of the AUM are held in closed ended funds with an average life of 16 years making the funds very sticky but harder to grow.  For this reason it fits the “buy and forget” box. The shares are expensive but at a relatively small scale of £2.75bn of AUM there is considerable upside over time.

H&T Group Plc – Trading Update

Share Price 365p

Mkt Cap £94m

Conflict Disclosure: No Holding

  • Update Full year PBT is expected to be at the top end of expectations. 39% Pledge book growth to £71m. Retail was up 7% and FX income up 45%.
  • Estimates 33% PBT growth shows as consensus to £17.9m so this looks like a 5% -10% beat. 24% growth is expected for the 2020 year.
  • Valuation ROE is 11% and Price/book 1.3X.  2020 PER is 8 and yield 3.3%
  • Conclusion The sector is in one of its halcyon periods when the gold price rises, consolidation opportunities arise and there is plenty of demand. At the same time FX is growing strongly for Ramsdens.  Without structural growth this is not a “forever stock” but not often can we buy a 24% growth stock on a PER of 8X. There should be another upgrade and perhaps 30% to go for on the share price yet.

jeremy@charltonillingworth.co.uk

News

  • The sound of stable doors closing was audible yesterday as the FCA wrote to fund managers noting its concerns over conflicts of interest with ACD’s, liquidity management, and corporate governance.
  • The £625m merger of Tilney and Smith & Williamson has not met with FCA approval. The firms are working with the FCA to determine the way forward.

Hansard Global –  H1 New Business

Share Price 42p

Mkt Cap £58m

Conflict Disclosure: No Holding

  • Results New business of £80.1m is 8% up year on year. AUA is flat at £1.09bn. Sequentially new business is up 23.7% Q2 on Q1. The statement says the company is seeing growing momentum and is focusing on key distribution relationships.
  • Estimates PBT of £5.3m is expected to June 2020 up from £4.6m in 2019. The company delivered £14.9m PBT in 2015 and has been in decline since. Dividend of 4.5p is expected.
  • Valuation PER of 11 but the shares are supported by the 10.7% yield
  • Conclusion This is a value situation with a core business in decline. New products could well emerge from the ashes but there is no mention of them today. Usually they emerge. The September statement referred to the acquisition of the investment manager license in Japan and the finalisation of distribution partners to launch new business in this geography. This may be early but there will soon be a time to own this.

RBG Holdings – Pre Close Update

Share Price 98p

Mkt Cap £85m

Conflict Disclosure: No Holding

  • Update Results expected to be in line with expectations. Rosenblatt has built £2m of contingent revenue while the corporate division saw reduced billings though this is increasing post the election. Convex Capital, acquired in September, has contributed to revenues and has a significant pipeline of transactions. £2,2m is invested in 11 cases. An interim dividend for the 6 months to December of 3p is expected. Keith Hamill is new Chairman.
  • Estimates PBT of £7.8m to Dec 2019 is expected, growing to £9m in Dec 2020. EPS 8.7p and a 5.2p dividend. The total dividend for 2019 is expected to be 5p, ahead of the 4.8p forecast.
  • Valuation PER 11.3X Yield 5%. IG trades on 17.4X.
  • Conclusion This is now a transactional business. Numis trades on 13.7X PE and yields 4.2% and RBg deservedly trades at a discount.  While the valuation looks about right this could be a good year for these transactional businesses so there could be a trade here.

jeremy@charltonillingworth.co.uk

Quilter Plc –  Lighthouse

Share Price 165p

Mkt Cap £3,164m

Conflict Disclosure: No Holding

  • News Quilter has reached recent highs on the back of stories that Warburg Pincus have held preliminary conversations about taking the firm private at a level a little below the current price. While this week the FCA sent a “Dear CEO” letter to financial advisers regarding behaviour over pension transfers. So its not ideal timing for Lighthouse, who had a network of c 400 advisers to admit to making a “minor technical error” while advising the steelworker to transfer out of their pension.
  • Valuation Current year PE is 16.4X and yield 3% though the shares are cum a £375m return of capital which is c 20p/share. £167m PBT is expected in 2020 which is c 53% advice and wealth and 50% platforms once life assurance is excluded. That looks full to me when I can buy Rathbone on a PER of 15.2 at the moment (cheaper than Brewin)
  • Conclusion Quilter acquired Lighthouse for £46m last April and with the FCA limbering up for some pension scalps it could turn out to have a negative value. Harwood Wealth, which also had a network recently went private at a discount to the screen price. I suspect Warburg Pincus should be nurtured fully. The only certain thing would seem to be Quilter shares are too high.

CMC Markets – Q3 Update

Share Price 160p

Mkt Cap £464m

Conflict Disclosure: No Holding

  • Update Higher client retention in Q3 combined with a good start to Q4 results in operating income to be ahead of the upper end of analyst forecasts.
  • Estimates March 20 expectations are for £39.7m PBT which is 12.5p EPS. Looks like a 5-10% upgrade
  • Valuation PER 12.8X Yield 3.9%. IG trades on 17.4X.
  • Culture I sense the value of having a significant stakeholder at the helm may be under appreciated
  • Conclusion Imagine we entered a world where these CFD clients became longer duration. It may be too early to suggest that but if it did become the case the sector would be re rated. In the meantime with profits set to grow the shares look cheap.

JTC Plc – FY Trading Update

Share Price 425p

Mkt Cap £485m

Conflict Disclosure: No Holding

  • Update Organic growth is said to be 8-10%. Private client services is said to be particularly strong.  A number of interesting M&A opportunities are being seen. Credit facility has been increased to £150m. Results expected to be in line with expectations.
  • Estimates £26.5m PBT is expected to Dec 2020 which is 20.9p EPS. This is expected to grow 14% in 2020.
  • Valuation PER 20X, Yield 1.2%. EV/EBITDA 22X
  • Culture I have an in built mistrust of the private equity background of this company. Organic growth is abnormally high for this stable business and in the past situations such as this have shown a disappearance of organic growth when acquisitions stop. Hence I am seeing this as a quoted private equity style culture.
  • Conclusion  The debt facilities are now 4.4X EBITDA.  Current share prices suggest they could raise equity at this strong valuation but the day the company can’t do that there is plenty of downside. 

jeremy@charltonillingworth.co.uk

News

  • Ince Group, fresh from its placing at a 50% discount, has hired 10 fee earners from the maritime law firm Bentleys, Stokes and Lowless.
  • Tungsten CFO is to step down. The new CEO, Andrew Lemonofides joined in September last year.
  • Ratesetter Australia (in which Ratesetter Uk has a 15% stake) has appointed advisers for a listing on the Australian exchange.
  • The FCA launches its suitability review into suitability focussing on pension advice.  Firms are reporting significant increases in PI costs this year. The FCA report will be published “this year”

Close Brothers – Trading Update

Share Price 1567p

Mkt Cap £2,371m

Conflict Disclosure: No Holding

  • Update In Banking the loan book was flat at £7.68bn. Growth in commercial offset by decline in property with retail flat. NIM stable at 7.8% and bad debts remained low while increasing from 0.6% to 0.8%. Costs are expected to grow ahead of income this year. AUM grew 7.7% to £12.6bn, while Winterflood trading picked up with the market over the course of the last quarter. Outlook says they are well placed to support our customers (note the missing word “grow”)
  • Estimates £268.9m PBT appears to be consensus PBT to July 2020, a 1.6% increase from July 2019. With the bank accounting for c 85% of profits it is possible that winterfloods and asset management can deliver the profit growth.
  • Valuation PER 11.7, Yield 4.4%. Forecast ROE is 16% while it trades at 2X book value
  • Culture The company has a strong franchise and is so conservative it is not growing. Sometimes businesses have such a great business that they become too comfortable and thus stop taking risks.  I wonder if this may be relevant here.
  • Conclusion With the CEO standing down this year and the company being ex growth this could well be a time the company gets bid for.  I can get to perhaps a £20 SOTP valuation.  In the meantime the shares are cheap and provide a 4.4% yield

AJ Bell – Trading Update

Share Price 404p

Mkt Cap £1,655m

Conflict Disclosure: No Holding

  • Update. Net inflows of 1.2% on the advised platform and 2.7% on the D2C platform taking AUA up 5.1% overall to £47.2bn.  The advised platform flows of 1.2% compare to Integrafin’s 2.5% disclosed yesterday. Customer numbers grew faster at 4% and AUA are 27% ahead of where they were a year ago.
  • Estimates anticipate a 13% revenue increase in the year to September 2020 and a 21% PBT increase which should trouble the scorers with AUA up 27%. The CSR initiative provides £10m for charity if earnings double over 3 years (underwritten by Andy Bell). Forecasts anticipate a 60% increase over 3 years.  
  • Valuation PER 44.9X Yield 1.4%. 2022 PER is 33X. If EPS was to double by then from 2019 the Per would be 27X
  • Culture The management stakes and incentives combined with entrepreneurial spirit make this a high quality culture, perhaps explaining the high valuation
  • Conclusion The valuation makes it hard to make a buy case even if targets are met and upgrades delivered.  The shares are priced close to the placing price of 400p and 420p at which management stock was placed in December. Can’t find a buy case.

jeremy@charltonillingworth.co.uk