Santa Rally 

  • Yesterdays warnings from Superdry and Filtronic followed hard on the heels of MySale, Primark, McColls, Carpetright, Mothercare and Thomas Cook warnings.  As we get to the end of the year it starts to become apparent when the cupboard is bare.  The retailers are featuring strongly in the profit warners currently although we are not yet at the levels seen in 2008 when a little under 50% of all listed retailers issued a warning.  Looking at the trends up to Q3 however it looks like the retailers could have a shot at the 2008 record high this year. There were 43 retailers that warned in 2008. Up to Q3 2018 we had 25 so we need 18 in the last quarter in order to trouble the record books.


Lots of trading updates today

  • Purple Bricks – reduces guidance by 2%. Share trade at 2.6X April 19 revenue
  • Bonmarche – warning
  • Ultra Electronics – in line
  • Ocado – in line

IFG Group – Trading Update

Share Price Euro 1.49

Mkt Cap £142m

  • Update – This is an interesting company for the value investor. Legacy issues remain ongoing but the company believes they have adequately provisioned for these issues.  Financial targets are helpfully set out today to 2021. Saunderson House AUA at 31 October are flat over 12 months at £5bn as market headwinds offset inflows while James Hay AUA are up 2% over the last 12 months. Inflows have slowed as the DB transfer market has slowed. This is a common feature that a number of financial advisers report after a buoyant year in 2017.
  • Estimates – The company target 7% annual revenue growth over the next 2 years at James Hay and operating margins increasing from 19% to 25% while at Saunderson House the company anticipates 9% annual growth out to 2021 with an improving operating margin. Extrapolating from 2017 results that gives an operating profit of £14m from James Hay and above £11m from Saunderson House in 2021.
  • Valuation – SOTP – James Hay may be worth 15X the £14m operating profit in 2021 which is £210m. While the £11m from Saunderson house may be worth perhaps £120m  Assume the cash on balance sheet is paid out to settle the legacy matters and we have a target market cap of £330m or 2.3X the current price.
  • Conclusion – Share will go up on this reassuring update.

Integrafin – FY Results

Share Price 272p

Mkt Cap £925m

  • Results FUD were up 18% over the year to £33.1bn on the back of strong net inflows of 14.7% over the year. Revenue was up 14% as revenue margins continue to suffer attrition and PAT was up 10.1% to £32.9m. Adjusted PAT was £35.5m. The outlook refers to the resilience of platforms in bear markets. Adjusted operating margin was 47%. Dividend is increased 10%
  • Estimates Results appear to be a little behind consensus of £36.6m of adjusted PAT while revenue is bang in line. Going forward estimates look for 14% EPS growth which potentially could be aggressive if there is a prolonged slow down in commission.
  • Valuation 12 months forward PER is 22.8X and yield 2.8%
  • Conclusion With the shares having come back from the 400p high post IPO they look to be fair value.

Tungsten Holdings -H1 Results

Share Price 32p

Mkt cap £40m

  • Results Revenue up 3% to £17.6m and an EBITDA loss of £752k. Cash outflow over 6 months was £4.5m while net cash was £2m. 
  • Estimates The company guides to FY revenues of £36-£36.5m and £34m of operating expenses so an EBITDA profit for the year.
  • Valuation The shares trade a little over 1X revenue
  • Conclusion The company is now at the bottom of the cash curve and states it has adequate capital. If this is true the shares could double but there is a large short position on the shares betting an equity raise will be required.

Support Services

  • I was fairly sure the support services analyst I saw yesterday was clinically depressed talking of the pointlessness of her role when things are imploding around her.  She said it was worse than 2008. We noted that in 2008 it was a financial crash and support services were a relatively safe haven then. But just now with Kier, Interserve, Carrillion all look to be in trouble it appears all these allegedly safe haven government contractors are turning out to be not the safe haven they are supposed to be.  The reason they are going wrong however is the same as the reason the financial crash happened. The sector is not a growth sector.
  • In 2008 mortgages were not a growth sector so instead of admitting that, loans simply became more risky in order to manufacture growth. Government contractors likewise has stopped growing so the usual trend of increased leverage combined with acquisitions manufactures growth which is a finite path that ultimately comes to an end. The warning sign is a stable sector that keeps growing its debt .

  • The sector that has grown steadily and now seems to be perceived as a safe haven may well be travel.  Forecasts continue to extrapolate the past:
  • When the canary in the coal mine could well be Thomas Cook who have increased their debt pile to £389m resulting in a transfer of value from shareholders to debt holders

  • Conclusion And maybe this time round financials could just possibly be a safe haven. Just maybe.

Market Performance

  • Meanwhile stocks are now selling off indiscriminately. In financials the largest fallers over the last month are:

            1yr fwd PER   Yield

Brooks Macdonald      -12.8%       11.3X               3.9%

Investec                      -13.2%             7.7X                 6.2%

WH Ireland                  -23.2%             n/a

Brewin Dolphin            -12.6%            12.7X               5.9%

Funding Circle             -11.8%             n/a

Liontrust                      -11%                11.8X               4.4%

River & Mercantile      -13%                12.9X               6.7%

Cenkos                        -16.7%             7.0X                 14.4%

CMC Markets             -12.6%             8.9X                 7.4%

FairFX                         -12.8%             13X                  n/a

Numis                          -12.5%             11.2X               4.2%

Of these I would highlights Cenkos and Brewin dolphin


Share Price 63p

Mkt Cap £35m

  • News – CFO is to leave in March 19. A search for a replacement will be conducted. This follows Jim Durkin returning as CEO. Today there are a number of change of adviser announcements as the acquisition of Smith & Williamsons NOMAD operation completes.
  • Estimates – There is no vivibility of broker earnings which remain lumpy. Over the last 6 years revenue has ranged from £43m to £76m while profits have ranged from £2.5m to £15.4m.
  • Valuation – Net assets at June 17 were £26m of which £22m was cash.
  • Conclusion – With the franchise building from the acquisition and new management this could be an interesting recovery situation. The only question is will investors be able to buy the stock at NAV which is still 25% below the current level.  It seems results in march may not read well. That could be the opportunity.

Brewin Dolphin

Share Price 313p

Mkt Cap £886m

  • Estimates – Revenue has some market sensitivity but current estimates for the year to September 17 are for revenue growth of 7% to £353m. September 18 results showed a 10.7% increase in adjusted PBT to £77.5m from £42.8bn of AUM
  • Valuation – Net cash t September was £186m do the EV/AUM is 1.6%.  Revenue multiple is 2.1X.  The market price for disctretionary fund managers is c 3X revenue or 3% of AUM.3X revenue would provide a share price of 414p and 3% AUM would provide a share price of 519p
  • Conclusion – The share price is wrong

In a good summation of my career it seems the FTSE has now gone nowhere in 18 years. It closed at 6930 at the end of 1999 and the FTSE future is currently indicating an open of 6862. Of course this excludes dividends.

Boohoo got rumbled on watchdog last night for resetting the clock after adverts urged people that the offer ends at a fixed time. A statement out this morning reassures that they have taken the advertising standards authority guidance on board and the matter is closed. 

Monzo – Placing

Mkt Cap £1.02bn

  • Placing – This week Monzo raised £2m from its existing investors after launching its £20m crowd fund raise on Monday. Yesterday it opened the round on Crowdcube to its customers and raised the balance of £18m in just 2 hours 45 minutes.
  • Estimates – No
  • Valuation – Revenue in the year to February 2018 was £1.8m while the operating expenses of £35m resulted in a £33m loss.  So that’s a revenue multiple of 555X.  In the internet bubble we valued eyeballs when we couldn’t use financial metrics. Perhaps if we use current accounts as an eyeball equivalent the valuation is £1,000 per customer. That looks very reasonable against the valuation of Barclays 24m customers at £1,120 per customer
  • Conclusion If millennial customers are as valuable as Barclays customers this could be a unique opportunity. Or the millennials have just seized power from the fund managers. Sometimes I feel like I have travelled to a strange land where my plane has landed in a very pleasant field of opium poppies. So lets not worry about things like a bear market in equities.

M&A – Plenty

  • Global Risk Partners disclosed a rune rate of £35m EBITDA from £110m of insurance broking revenue having made 12 broking acquisitions this year thus increasing EBITDA 73%. Backed by Penta Capital
  • Qatar owned SEIB insurance brokers yesterday acquired the equine book of insurance business from Greenwood Morland Insurance Brokers for an undisclosed sum
  • M J Hudson acquired Amaces, a data analytics company in the Us for an undisclosed sum.

Impax Asset Management – FY Results 

Share Price 218p

Mkt Cap £284m 

  • Results The company reports AUM up 72% largely as a result of the US acquisition. Net inflows over the year to Sept 18 were 14% which were weighted towards the early part of the year with net inflows slowing post the acquisition of Pax. Revenue was up 101% to £65.7m and PBT up 150% to £14.6m delivering a 22% PBT margin. Adjusted EPS was 12.4p and the normalised DPS for the year was 4.1p. Since the period end AUM has declined to £12.2bn as a result of markets but inflows continue and performance is strong
  • Estimates At the period end the revenue run rate was £69m giving a revenue yield on the AUM of 56 bps. Forecasts to September 2019 assume £78m of revenue which will need better markets or strong inflows to achieve
  • Valuation Forward PER is 19.1X and yield 2.5%. EV/AUM is 2.3%. Cheap on an EV/AUM basis but because of the comparatively low operating margins the PER is high.
  • Conclusion The shares are up 311% over the last two years. Net inflows continue at a slower rate but with the shares looking expensive there may be cheaper stocks elsewhere in this market.

The market has now decided rates are not going high in the US as the long bond yield goes below 3% the 2-10 year spread is now the lowest in a decade which should help markets.  I can’t help but think how bearish the world is at the moment and suspect there could be an enjoyable post Brexit bounce in markets. The graph below is the 2-10 year US treasury spread.



  • AJ Bell deadline for IPO orders. Price range 154p-166p
  • Finncap shares start trading on the LSE. IPO price 28p

 Numis FY Results 

Share Price 277p

Mkt Cap £292m

  •  Results 5% revenue growth to £136m and following a 15% increase in the headcount a 17.4% reduction in PBT to £31.6m. EPS down 8.4% following share buy backs to 25.1p. Net assets £143m of which cash is £111m. 210 corporate clients with an average market cap of £829m. Outlook refers to more challenging markets in recent months.
  • Estimates Results are in line with the market estimate although EPS is a little ahead as the share buy backs have enhanced earnings . Going forward there is scope to increase the 25.8p EPS forecast although markets are harsher 
  • Valuation PER 10.7X. Yield 4.3% 
  • Conclusion Numis’ ROE is a healthy 28% due to its market leading position. The company is keen to point out Mifid 2 has had little effect.  And it looks cheap. However, I worry that the UK market may move towards the US model where companies employ investor relations consultants increasingly which may structurally put pressure on the primary fees that these businesses are so reliant on.  And with a high cost model this could leave the businesses exposed. 

PCF Group Plc – FY Results 

Share Price 37p

Mkt Cap £79m 

  • Results 50% portfolio growth to £219m with deposits of £191m. NIM was 8.2% and impairments maintained at 0.5% meant PBT was up 44% to £5.2m and EPS was up 33% to 2.0p.  Core Tier 1 ratio is a healthy 19.3% and the ROE increased from 8.7% to 10.3%. Dividend up 58% to 0.3p final. Outlook is confident. Azule has been acquired since the year end which will enhance the company’s European capabilities as well as adding profits which historically were £0.8m and PCF has also entered the property bridging market. They have hired the admirably named Gerald Grimes. 
  • Estimates Results are c 5% ahead of the 1.9p EPS estimate. The PAT estimate of £5.9m for the year to Sept 19 looks too low 
  • Valuation The company says it is a year ahead of its plans due to strong loan book growth. The medium term target is to provide a 12.5% post tax ROE which on taday’s equity of £42.6m would be post tax earnings of £5.3m. The shares trade at 14.9X this figure.  A 12.5% ROE may merit a valuation of perhaps 2X book value which is 40p per share 
  • Conclusion  It is unusual to see a bank grow its loan book at 50% while maintaining impairments at 0.5%. This is a very high quality situation with strong growth a confident outlook and reasonable valuation. Just the valuation is close to anticipating the company’s medium term targets.  It may be up with events until new strategic targets emerge.

Risk and Consumers

  • Convicts I found myself yesterday wondering why it felt so wrong that a goodly number of the convicts were sent to Australia for the offence of membership of a trade union.  In those days anything that interfered with the property owning classes was generally a transportable offence. While with the emergence of the middle classes they invented exams as a kind of trade union in order to restrict supply and so keep the prices of professional services up in accordance with the economic laws of supply and demand.  Which is why I had to learn the capital asset pricing model at university. Then I had to be examined on it to become an accountant. Then I was examined on it again to get my stockbroking exams (what was then the SFA). And then I had to be examined on it a fourth time to get my fund management exams with the IIMR.
  • What is risk? So when I learned at the excellent year end round up yesterday from Holly MacKay at Boring Money ( that in order to communicate with investors we need to relearn that CAPM, being based on the measure of risk called Beta, which is a measure of volatility is not actually what investors regard risk to be. In fact it is their level of understanding of a product which is their perceived risk I start to understand just how far away from the customer the investment industry has become.  Of course one of the problems is the regulator is regarding risk as volatility rather the consumers understanding of risk so the industry is obliged to put the regulators rules ahead of the customers rules so change becomes difficult when the regulator is also acting as effectively a trade union and restricting supply.
  • Solution It appears financial education is the easiest solution to this gap between the industry definition of risk and the customers definition of risk.  There is this year for the first time a GCSE in finance which is a good start. I am pleased to say I tried it and passed. Which was a relief. But I suspect that some of the fund management marketing departments should be focussing on financial education rather than selling themselves as planets, explorers, animals and hunters. This would undoubtedly reduce the perceived risk of their products and hence increase demand.


  • Zopa yesterday became the first Peer 2 peer to lender to be granted a banking license by the PRA. It will now enter a mobilisation phase ahead of full launch next year.  Zopa was valued at £300m in the latest fund raise and this will undoubtedly help the valuation. Trufin has a 14.9% stake in Zopa which was valued at £44.5m in the June 2018 interims which was 28% of the £159m NAV. The market cap is now £198m having fallen 10% in the least month.

Park Group – H1 Results and Strategy   

Share Price 78p

Mkt Cap £145m

 Results – Billings were up 3% and revenue reduces 10% to £27.4m in H1 as a number of low margin customers departed.  Pre tax losses were reduced from £1.9m to £1.5m after interest receivable increased a little to £0.8m from £0.7m.  Cash balances were £212m (2017 £199.6m). Dividend increased 5% and results are said to be in line with expectations. The new four pronged strategy will be revealed at todays investor day but the four prongs are around focus, ease of use, efficiency and a new product launch.

  •  Estimates – Estimates to March 2019 look for a 1% revenue increase and a 4% PBT increase for the year to March 2019.
  • Valuation – PER is 12.7 and yield 4.3%
  •  Conclusion  – This is a well invested platform which has weathered the headwind of falling rates for 10 years. It now looks like those headwinds will become tailwinds just as they are launching a new product about which there is little detail in the results. Were interest rates to increase by 0.5% this could add c 8% to earnings by my calculations. And if the new product gets traction the shares could be re rated.  With the well invested technology and the virtual card it could potentially get a technology type of rating. This could be an inflection point.

One pm – Trading Update 

Share Price 42.5p

Mkt Cap £37m

  •  Update  Trading is in line with expectations for the half year to November and the group expects to pay its maiden interim dividend which will be one third of the expected final dividend.
  • Estimates Forecasts look for 21% EPS growth for the year to May 2019 which is 7.55p per share
  • Valuation PER is 5.5X and yield 2.4%. The NAV per share is 56p on which the company produced a 16.7% ROE last year.
  • Conclusion A small cap lender can reach extremes of undervaluation. This has. 2X book value may be a normal valuation for a company producing a 17% ROE which is 112p per share, 163% above the current share price.

IG Group – Pre close update

Share Price 608p

Mkt Cap £2.24bn

  • Update Revenue in H1 is 6% lower than last year. The company confirms that since the regulatory changes in Europe group revenue has been 10% lower which is 20% lower within the ESMA regulated territory and 9% increase in the other regions.
  • Estimates Market forecasts appear to anticipate a 10% in group revenue for the year to May 19 do this looks in line with expectations
  • Valuation PER 11.7X yield 6.9%. Plus 500 trades at a PER of 8.3X and yields 10% while CMC markets trades at a PER of 9.6 and yields 6.5%
  • Conclusion It appears these companies have guided the market broadly accurately which is quite an achievement given the lack of visibility over the customers response to lower leverage limits.  The shares are very cheap and the sector may have a relief rally