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
Bank – Q3 Update
Disclosure: No Holding
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%
9 months into the year the company has delivered GEL
380m which is 71% of the GEL 535m forecast which looks about right.
The 20% ROE is valued at 1.4X book value. PER 5.9X
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
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
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.
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.
Global – Fund Management strategy
Disclosure: No Holding
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.
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.
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.
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.
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.
James’ Place allegations of sexism and
using confidential data to target potential clients in the Sunday Times
Asset Management – H1 Results
Disclosure: I Hold
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.
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.
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.
Financial – Trading Update
Disclosure: No Holding
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.
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.
PER 9X and yield 3%
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.
Financial Markets Consulting – Acquisition
disclosure: No Holding
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.
No No financials are provided for Obsidian, but it is
expected to be earnings enhancing for the year to March 2021.
PER 13.9X, Yield 3%. 16% EBITDA growth is expected for
the year to March 2020. H1 results are expected on 20 November.
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.
Group – Trading Update
Disclosure: No Holding
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
The “in line” statement suggests no change though the
H2 weighting is never a good look.
PER 5X, yield 6.2%. 0.5X EV/Revenue
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.
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
& Mercantile CFO, Kevin Hayes, to retire
Financial – Q3 Update and Cap Mkt Day
Disclosure: No Holding
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
The new strategy is for 5%-10% receivables growth
delivering a ROE of 20%-25% with 1.4X dividend cover
– Trading is in line with the £164m PBT forecasts for this year.
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.
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
Of Georgia – Q3 Results
Disclosure: No Holding
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%).
Assume 15% growth going forwards.
PER 5.6X Yield 5.8%
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
Group changes its name to Appreciate Group Plc.
becomes joint broker to Litigation Capital Management
Peel Hunt is
the third joint broker to Paragon
announces it has hired 15 senior people in 2 months. They employ 3,200
Exposure – Tchenguiz Proposal
Disclosure: No Holding
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.
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.
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.
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.
Ireland – H1 Results
Disclosure: I consult for the company
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.
No forecasts in the market
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.
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.