I was interested to read that shareholders were referred to as “Adventurers” in the 17th century by The Hudson Bay Company. I could relate at Mello yesterday.  

TBC Bank – Q3 Update 

Share Price 1392p

Mkt cap £767m

Conflict Disclosure: No Holding

  • Results The story of strong growth, tightening NIM and sharp reduction in cost of risk mirrors the trends that Bank of Georgia reported recently. PBT was up 18% to GEL 126.8m. NIM reduced to 5% from 5.1% while cost of risk fell from 1.9% to 0.7%. The cost income ratio was up form 37.9% to 39.9%. The ROE was 20.4% from 21.2% previously. Tier 1 ratio was 11.9%.  The outlook highlights the bank’s performance in the affluent sub-segment and reiterates the medium term targets of 20% ROE, cost/income below 35%, loan book growth of 10-15% and a payout ratio of 25%-35%
  • Estimates 9 months into the year the company has delivered GEL 380m which is 71% of the GEL 535m forecast which looks about right.
  • Valuation The 20% ROE is valued at 1.4X book value. PER 5.9X Yield 4.7%.
  • Conclusion  For a cheap stock such as this share prices generally follow profits over the medium term. However, in an environment of reducing rates it becomes harder for banks to maintain their ROE and consequently their valuation, which may explain the 25% share price retrenchment over the last 6 months.  It is hard to see any valuation uplift in this environment, but the profits will continue to grow.

Miton Group Plc – Suspension

Share Price 56p

Mkt Cap £97m

Conflict Disclosure: I Hold

  • Suspension The announcement says the shares are suspended pending an announcement which generally sends a shudder down the spine. However it was the EGM approving the merger with Premier yesterday so we can expect the shares to convert into Premier Miton Group stock shortly.  The exchange ratio is 0.30186 so shareholders will get the equivalent of 54p of Permier stock at the current price of 181p and a 4.9p special dividend which looks good value for 56p.
  • Synergies The synergies achieved over 2 years amount to £7m which adds 27% to PBT over the 2 year period.
  • Valuation The premier PER is 13 and yield 5.7%.  Premier shares are up 8% since the merger was announced suggesting that the synergies haven’t been fully priced in or the merger will cause an outflow of funds or people.
  • Conclusion With all 3 house analysts unable to provide forecasts or numbers I suspect this is an inefficient market and when the black out period ends the share could well start to anticipate some revenue synergies of the combined distribution as well as the cost synergies.



  • One Savings Bank delivers an upbeat Q3 update after completing its combination with Charter Court on 4 October, which is in line. Loan book growth high teens at OSB and high 20’s at Charter Court.
  • Wetherspoon’s results make good reading today. Tim Martin swivels his guns to target corporate governance and its “Noddy in Toyland aspect of the current farce”. Columbia Threadneedle and Blackrock get special mentions.
  • In a sign of things to come British Land has abandoned physical analyst meetings for the first time.  Just a conference call.
  • Crypto Peer to peer lender JustUs has launched a cryto lending platform where investors can top up their account with any currency including cryto and lend it over the platform against property or loans.  The crypto currencies are thereby becoming integrated alongside other currencies. The company is FCA authorised.

Arrow Global – Fund Management strategy

Share Price 210p

Mkt cap £373m

Conflict Disclosure: No Holding

  • Results Everything appeared to be in line with expectations yesterday while the shares were off 8%.  Perhaps because the accounting is akin to asking the directors their estimate of profit for the year it has always been of great interest to the shorters, in the hope that one day the directors estimates will turn out to be biased.  Which is why operating the business as a fund management company earning management fees makes sense.
  • Estimates The company aims to derive a 25% ROE and in the current year is running at an underlying rate of 29.5% with leverage higher than target at 3.7X (target 3X-3.5X).  Fund Management has the ability to drive a higher ROE higher.
  • Valuation PER 6.2X and yield 6.2%. The shares trade at 1.8X book value though book value is based on discounted estimates. However, when the weighted average cost of debt is 3.7% and the cost of equity appears to be in the region of 16% there appears to be plenty of room to make money in between the lenders assessment of risk and the equity markets assessment of risk.
  • Conclusion  Intermediate Capital had a similar problem with its profits being unpredictable and frequently based on estimates.  In 2014 20% of their £175m PBT came from fund management, while in 2019 52% of the £278m PBT came from fund management. The shares are up 190% over the 5 year period. Sometimes markets don’t anticipate returns until they appear on the screen. Arrow could have a strong 5 years ahead.


Chart of the week

  • We need a positive chart for a Monday. This is the US 10 year swap rate minus the 1 month LIBOR yield curve which has “uninverted”. This tells us that the markets assessment of credit risk has reduced implying an improvement in economic conditions. Happy Monday.

WeeK End

  • St James’ Place allegations of sexism and using confidential data to target potential clients in the Sunday Times

Tatton Asset Management – H1 Results

Share Price 214p

Mkt cap £119m

Conflict Disclosure: I Hold

  • Results AUM up 22.8% over 12 months to £7bn, which is 14.7% over 6 months, so accelerating inflows. Revenue up 15% to £9.73m and adjusted operating profit up 23.2% to £4.13m.  EPS up 17.9% to 5.39p. Net cash £9.2m. Tatton grew revenue 19% while delivering a 60% operating margin, and Paradigm revenue was up 7% delivering a 35% operating margin. The outlook refers to improved efficiencies and trading is said to be in line.
  • Estimates Full year estimates to March 2020 anticipate £9m PBT, of which 46% has been delivered in H1.
  • Valuation PER 16.9X, yield 4.5%. The investment platform is a scalable platform making 60% operating margin, which with the very high ROE potential should be highly ratable. If we (possibly heroically) said that Paradigm pays for the central costs that leaves Tatton IM valued at 13.9X the run rate profits at the current market cap.
  • Conclusion  I like this one. I feel the market has focussed on the Paradigm business and so overlooks the modest valuation placed on the Tatton IM business. That value should come out over time.

AFH Financial – Trading Update

Share Price 275p

Mkt Cap £118m

Conflict Disclosure: No Holding

  • Update Revenues for FY to October expected to be £74m. EBITDA expected to exceed £17m and FUM reached £6bn in October. Despite the new focus on organic growth the board remains confident of the aspiration of £140m revenue and 25% EBITDA margin (£35m). Cash is £11.9m.
  • Estimates  I am looking at a consensus forecast of £79.3m revenue so results look a little shy of forecast and EBITDA expectation was £17.7m so “in excess of £17m) may also be a little shy.
  • Valuation PER 9X and yield 3%
  • Conclusion The shares have fallen back 34% from their highs. It is always difficult to move from a strategy of acquisition to organic growth. Historically this has often resulted in slowing organic growth. There are also reports of high staff turnover at AFH. The shares are cheap and the statement is upbeat but there could be some growing pains going on underneath.  It may take 12 months until we get pure organic like for like numbers and until then there are some risks.

Alpha Financial Markets Consulting – Acquisition

Share Price 194p

Mkt Cap £200m

Conflict disclosure: No Holding

  • Acquisition Obsidian Solutions is acquired for £5.7m cash plus an undisclosed earn out. . Obsidian was founded in 2015 and provides cloud based Saas for business intelligence, client portals, KYC and reporting.
  • Estimates No No financials are provided for Obsidian, but it is expected to be earnings enhancing for the year to March 2021.
  • Valuation PER 13.9X, Yield 3%. 16% EBITDA growth is expected for the year to March 2020. H1 results are expected on 20 November.
  • Conclusion The shares are 28% off their highs. The valuation is starting to look persuasive and with a catalyst of results on 20 November this could be an opportunity.

Ince Group – Trading Update

Share Price 121p

Mkt Cap £45m

Conflict Disclosure: No Holding

  • Update Performance is expected to be in line with expectation for the full year to March 2020. H1 Results are expected on 28 November and the company notes the greater part of its revenues are traditionally in H2.
  • Estimates The “in line” statement suggests no change though the H2 weighting is never a good look.
  • Valuation PER 5X, yield 6.2%. 0.5X EV/Revenue
  • Conclusion The valuation suggests the market doesn’t trust this acquisitive business which is more diverse than comparators. If this valuation is sustained the company may lose its acquisition currency and end up going private.  Both that outcome or a re-rating are positive outcomes for shareholders.



  • Jupiter’s innovation in persuading shorts to close looks masterful. As Crispin Odey’s wife is appointed to the role of Chair of Jupiter Fund Management Odey confirmed they had closed their short position
  • River & Mercantile CFO, Kevin Hayes, to retire

Provident Financial – Q3 Update and Cap Mkt Day

Share Price 437p

Mkt cap £1,107m

Conflict Disclosure: No Holding

  • Update  Trading is said to continue “in line with internal plans” with all 3 divisions producing good volumes with stable impairments. Vanquis new customers were 13% down year on year but stable quarter on quarter, while total customer numbers were 2% up year on year. Impairments are showinh an improvement and costs are flat. Moneybarn continues to grow fast with new business volume growth of 36%. Impairments are in line with prior year. No effect from the FCA motor finance consultation paper. In CCD new and returning customers are 6% up year on year while customer numbers are down from 403k to 388k. Impairments are said to be “broadly” in line with levels prior to the change in operating model – which looking back ran at c 50% of revenue- (MorsesClub recently reported 19%).  
  • Strategy The new strategy is for 5%-10% receivables growth delivering a ROE of 20%-25% with 1.4X dividend cover
  • Estimates – Trading is in line with the £164m PBT forecasts for this year.
  • Valuation PER 9.4X yield 5.9%. The company produced a 18% ROE last year and trades at 1.6X book. If we assumed the targeted say 22% ROE on today’s equity we get a 25% uplift in PBT, which could take a couple of years.
  • Conclusion If the company achieves its strategy over the next two years we can see perhaps 50% upside from a combination of earnings and valuation. It really isn’t the quality of MorsesClub and doesn’t have the growth prospects, but both are out of fashion and it could be a good foew years for this unpopular sector.  

Bank Of Georgia – Q3 Results

Share Price 1352p

Mkt Cap £644m

Conflict Disclosure: No Holding

  • Results Loan book up 29% to GEL 11.4bn. .NIM down to 5.1% (2018 6.4%) and loan yields down to 11.5% (2018 13.5%). Cost income up to 37.9% (2018 36.1%). Cost of credit 0.5% (2018 – 2.0%).
  • Estimates Assume 15% growth going forwards.
  • Valuation PER 5.6X Yield 5.8%
  • Conclusion While growth is strong this feels like a new management team in a deckining rate and declining impairment environment.  Which in general is not ideal for banks. The shares remain very cheap but it is hard to see the edge.



  • Park Group changes its name to Appreciate Group Plc.
  • Investec becomes joint broker to Litigation Capital Management
  • Peel Hunt is the third joint broker to Paragon
  • DWF announces it has hired 15 senior people in 2 months. They employ 3,200 people.

Urban Exposure – Tchenguiz Proposal

Share Price 56p

Mkt cap £90m

Conflict Disclosure: No Holding

  • Proposal I don’t recall a time when these non bank lenders have been so neglected by markets and the evidence is now starting to show.  Robert Tchenguiz’s R20 Advisory (which has a 12.6% stake) has released a proposal which Urban Exposure is evaluating.  This involves turning the company into a listed debt fund with the management company being spun out which would, they say reduce costs by £12-£13m p.a. thereby intending to close the 25% discount to NAV at which the shares trade. It also proposes to issue 100m shares at 35p, a discount of 60% to NAV with pre emption rights for existing holders and paying a 30p/share dividend which will largely be underwritten by Tchenguiz.
  • For Tchenguiz it appears he would get most of the management company for free (which may be loss making) and will underwrite the share issue at a 60% discount. For shareholders that take the dividend and reinvest in the share issue their position will effectively be putting in 5p/share and it will bring forward the profitability of the business by perhaps 1-2 years.
  • Estimates This year to Dec 2019 Liberum forecasts anticipate £2.1m adjusted pre tax loss, rising to 2m PBT in 2020 followed by £12.8m and £25m. The statement says the proposal would reduce costs by £12-£13m.
  • Conclusion This proposal is effectively arbitraging the impatience of the stock market. Shareholders with less than a 3 year view may find it attractive while those with a longer time horizon may not.  In 2022 the ROE is expected to be 13% when it may be reasonable to expect the share to trade at perhaps 1.5X book value which is 135p/share if this deal doesn’t happen. But today the proposal may result in a closing of the 25% discount to NAV.  So it not an overwhelming proposal. But it does put the company in play.

WH Ireland – H1 Results

Share Price 49p

Mkt Cap £21m

Conflict Disclosure: I consult for the company

  • Results Revenue down 11% to £11.36m and costs down 17% to £12.25m. Loss reduced from £2.1m to £1.35m.  At the segment level Wealth Management contributed £1.6m and Institutional broking contributed £349k while central costs amounted to £3.17m. Net assets are £7.4m while cash is £4.1m. The company announces an accelerated book build for £2.5m this morning. The outlook refers to further cost reductions and monthly profitability expected by the new financial year which is April 2019.
  • Estimates No forecasts in the market
  • Valuation The AUM of £2.3bn is 48% discretionary (£1.1bn). If this was valued at 3% that is £31m, 47% ahead of the current market cap.  Assuming institutional broking and the non discretionary AUM are worthless.
  • Conclusion It is possible the business won’t reach break even by April next year but the clear statement suggests the company may have visibility on that.  Or it is possible they may lose some more AUM on the way to profitability, but it appears if the company achieves its aspirations there is significant upside.