News

  • Jupiter The first evidence of synergy on the Merian deal emerged yesterday as the Jupiter UK growth trust, which came close to sacking Jupiter last October, said they were happy to appoint Richard Buxton as lead manager.
  • Franklin Templeton Hot on the heels of the £22bn Jupiter/Merian deal Franklin Templeton acquires Legg Mason for $6.5bn which is a little under 1% of the $803.5bn AUM creating a fund manager with $1,500bn AUM.
  • Deutsche Borse confirms it is interested in buying Borsa Itialiana from the LSE

Preview this week

On a quiet day it may be worth taking a look at news due later this week.

Rathbone FY results

  • Now cheaper than Brewin the market appears not to be expecting much fun.
  • Thoughts Forecasts are for a 6% EPS decline followed by a 3% increase in 2020. Like fund managers when times are tough the focus frequently moves to corporate activity. Brooks and Brewin come to mind.

Integrafin – AGM

  • Flows have been strong. As have the shares
  • Thoughts Expecting more positive rhetoric, laws of supply and demand are likely to keep this expensive. Currently trading at 38X. Cheaper than AJ Bell at 43X

Plus 500 – EGM to approve remuneration

  • Pay CEO gets $485k salary, $1.94m bonus, LTIP award of $285k and share appreciation rights vesting after 3 years of $715k. Total $3.435m. The same for the CFO.Its certainly less than the $6m last year. But it may be worth putting it into context among other main list companies:
Company Yr End CEO pay
Main List £’000
3i Mar-19 7,877
AA Plc Mar-19 1,486
Admiral Dec-18 1,422
AJ Bell Sep-19 1,906
Amigo Mar-19 572
Arrow Global Dec-18 1,011
Ashmore Jun-19 3,605
Aviva Dec-18 2,283
Bank of Georgia Dec-18 $3,140
Barclays Dec-18 5,929
Beazley Dec-19 2,194
Brewin Dolphin Sep-19 1,091
Chesnara Dec-18 965
Close Brothers Jul-19 2,808
CYBG Sep-19 3,374
DWF Group Apr-19 1,845
Funding Circle Holdings Dec-18 4,081
Hargreaves Lansdown Jun-19 648
Hastings Dec-18 542
Hiscox Dec-18 1,863
HSBC Dec-19 4,582
IG Group Mar-19 780
Integrafin Sep-19 751
Intermediate Capital Mar-19 9,526
International Personal Finance Dec-18 1,158
Investec Mar-19 3,649
JTC Client Dec-18 538
Jupiter Dec-18 1,944
Just Group Dec-18 2,507
Lancashire Dec-18 1,431
Legal & General Dec-18 3,289
Liontrust Mar-19 4,419
Lloyds Bank Dec-18 6,270
London Stock Exchange Dec-18 3,439
Man Group Dec-18 2,856
Metro Bank Dec-18 801
OneSavingsBank Dec-18 1,574
Paragon Banking Sep-19 2,875
Phoenix Dec-18 2,482
Plus500 Dec-18 $6,030
Provident Financial Dec-18 1,387
Quilter Plc Dec-18 2,779
Rathbone Dec-18 1,967
RBOS Dec-19 4,066
River & Mercantile Jun-19 797
S&U Jan-19 387
Schroders Dec-18 6,735
Standard Chartered Dec-18 5,950
Standard Life Aberdeen Dec-18 6,718
St James Place Dec-18 1,901
TBC Bank Dec-18 $3,356
TPICAP Dec-18 1,666

News

  • CLIG results yesterday, released at 8.23 am included a reminder that Barry Oliff will sell 500k shares at each of 450p, 475p and 500p which is unusual when the shares are trading at 468p.
  • Gateley is placing 4.1% of the company (£9.5m) at not less than 200p/share by accelerated book build. I was encouraged this is the quoted lawyer with the highest glassdoor rating of 48 from 41 reviews as the working environment is important for people businesses.
  • Provident Financial’s subsidiary Moneybarn was fined £2.8m by the FCA for not treating customers fairly, which closes the FCA’s investigation. The fine of £2.8m compares to the £20m provision at the end of 2017 for redress. It does now provide for finality of the issue. I find myself contemplating that this unpopulare sector could have passed its nadir with NSF plc recovering, and Provident recovering. Just Amigo now to sort out.

Cenkos – Trading Update

Share Price 61p

Mkt Cap £35m

Conflict Disclosure: No Holding

  • Update Cenkos announces £1.4m in restructuring costs which reduces the annual fixed cost base by £3m. After taking into account the restructuring costs the company was profitable in H2 and expects to be profitable for the full year to Dec 19. In H1 a modest loss of £200k was reported. The company is encouraged by the strength of its pipe. Lisa Gordon to be appointed as non-exec chair.
  • Estimates Forecasts are for £29.5m revenue in 2019, rising to £37.5m in 2020 which provides £3.5m PBT. The only certainty is the 2020 forecasts are wrong.
  • Valuation At the half way mark NAV was £25.9m so the shares trade at a £10m premium to NAV.
  • Culture Some Glassdoor reviews call it a meritocracy. Others are less flattering. However, the unique culture perhaps makes it difficult to scale.
  • Conclusion Having produced £27m PBT back in 2014 this is a bet as to whether markets and this company can regain its former position. With Woodford now out of the stock and the former management team having returned it may be a reasonable bet.

Amigo Holdings – Strategic Review Update

Share Price 49p

Mkt Cap £51m

Conflict Disclosure: No Holding

  • Update A number of indications of interest have been received from several parties by the deadline of last night. Discussions are ongoing.
  • Valuation PER 3.1 Yield 19.5%
  • Conclusion  The highly unusual action of the 60% shareholder putting the company up for sale on a PER of 3 could lead some to suggest that the 60% shareholder may be among the indicators of interest. That action makes this uninvestable but there may be a turn for the agile trader, given there is more than one interested party. I will be staying behind the sofa.

jeremy@charltonillingworth.co.uk

News

  • Intu Struggling to fathom what made the Remuneration committee think this is a good time to boost the potential LTIP awards this morning
  • CLIG announced they would put results out today. Nothing yet.
  • Ninety One (Investec Asset Management) announces its intention to float.

Jupiter Fund Management – Acquisition

Share Price 397p

Mkt Cap £1,815m

Conflict Disclosure: No Holding

  • Statement Over the week end it emerged that Jupiter is in advanced talks to but Merian Global Investors, confirmed this morning.  Price is £370m up front with £20m deferred and Merian bring net debt of £29m equating to EV/AUM of 1.9%. TA Associates acquired Merian a little over 2 years ago, paying £600m for a majority stake. Back then the AUM was £30bn. Jupiter’s AUM back then was £50.2bn and Jupiter hasn’t yet disclosed its Dec 19 AUM but last September it stood at £45.1bn.   
  • Cost savings The underlying EPS accretion is said to be low to mid-teen accretion. Based of Jupiter reveues of £377m and Merian’s management fees of £140m that suggests c£60m cost savings from 2021 and increasing from 2022. The one off cost is expected to be £40-£45m.
  • Valuation Forecasts for Dec 2021 are for 27.7p EPS. If we accrete this by 12% for the cost savings that puts the shares on 12.8X. Premier Miton trades at 11.6X ahead of achieving their 27% accretion from the costs savings on their merger.
  • Strategic Henderson/Janus, Aberdeen/Standard Life, Liontrust/Neptune, Premier/Miton,  the list of squeezed fund managers combining is growing. While a new breed of specialists is emerging. Gresham House, Intermediate Capital, Impax, Arrow Global, and First Property seem to be the emerging highly specialist fund managers.
  • Conclusion This may improve fund diversification and achieve cost savings but is unlikely to improve flows in the short term. Net flows in the quarter to December, were -10% which is bottom of the pile when markets where strong.  There are cheaper, more transparent, and recovering fund managers to own. Underwhelming.

Share Plc – Bid

Share Price 29p

Mkt Cap £42m

Conflict Disclosure: No Holding

  • Bid Interactive Investor makes a (90%) paper offer valuing the company at 41p, or £60m, (assuming ii’s private company valuation of £675m).  
  • Valuation At 29p Share Plc trades at a PE of 41X and brings £5.3bn AUM with £22.8m revenues. The statement refers to shares values but to make financial sense significant cost savings, which aren’t mentioned, must exist.  Alongside some useful tools and benefits of scale.
  • Conclusion  This looks a useful deal for both parties. The benefits of scale are huge.  Note that Augmentum Fintech’s H1 results in December valued their 3.7% stake in ii at £14.8m implying a £400m value for Interactive Investor. Augmentum could be pregnant with a £10m write up.

jeremy@charltonillingworth.co.uk

News

  • FRP advisory is to list through Cenkos at a £200m valuation. That is 4X historic turnover which compares to Begbies’ 1.8X turnover, courtesy of FRP’s very high 44% operating margin. Perhaps FRP’s brand value or relationships will make the high margin sustainable in the long term.

Frenkel Topping – No discussions  

Share Price 45p

Mkt Cap £34m

Conflict Disclosure: No Holding

  • Statement Harwood Capital entered discussions on 28 January which have now been terminated. The board confirms results are in line with expectations with AUM increasing 15% to £897m at 31 December. Revenues are expected to exceed £8.5m. Ascencia AUM were up 31% to £399m and the company continues to build momentum.
  • Estimates Forecasts anticipate £2.1m PBT and EPS 2.6p. Operating margin 24%.
  • Conclusion The shares were 38p ahead of the announcement of talks which is 14.6X PE.

Polar Capital – Team Acquisition

Share Price 550p

Mkt Cap £531m

Conflict Disclosure: No Holding

  • Acquisition The International Value and World Value Equity team is being acquired from Los Angeles based First Pacific Advisers. The team will establish a JV branded as Phaecian Partners where the economics will be consistent with other teams at Polar.  The team manages $1bn in 3 vehicles which will be reorganised pooled vehicles to a new US series trust. Consideration is 25% of Polar’s normal 55% interest over the first 5 years.
  • Estimates The company expects core EPS will benefit by 0.5p on the existing $1bn AUM but this will be depressed by the revenue share over the first 5 years. Last year core EPS was c 33p so 1.5% enhancement.
  • Valuation The shares trade at 14X Dec 19 earnings. EV/AUM 3.4%.
  • Conclusion Unusually shaped US acquisitions of people businesses is frequently a reason for caution. Financially it looks sensible.  But it takes bravery at a time when markets are high.

Plus 500 – Meeting

Share Price 911p

Mkt Cap £986m

Conflict Disclosure: No Holding

  • Thoughts I was surprised there were no forecast upgrades yesterday, particularly as more share buy backs were announced. With H2 EBITDA up 93% on H1 the 3% EBITDA growth in forecasts looks undemanding. Returning to the screen I noticed the RNS put out at 4.33 the night before results titled “Notice of EGM” was in fact a meeting to change the remuneration of the CEO and CFO. The annual bonus (up to 400% of salary so $1.94m) is determined on EPS growth. The LTIP ($285k) targets are TSR (upper quartile of FTSE 250), EPS growth (12% target), and HR.  This 12 % target compares to the 7% EPS growth being forecast this year. There is also a share appreciation right of $2.5m subject to the achievement of KPI’s “in line with UK corporate governance best practice.” I note the notice of EGM to change the remuneration is “following consultation with shareholder bodies”. Not shareholders.
  • Estimates Australia is expected to reduce at the end of this year. Perhaps 50% which could reduce revenue by 7% but when almost 7% of the market cap will have been spent on share buy backs over 12 months and you still have 23% of the market cap in cash on the balance sheet available for earnings enhancement activities. 12% compound should cause management to break sweat.
  • Valuation 36% ahead of the EPS just reported gives $1.83, putting the shares on 6.5X
  • Conclusion The EGM is in a week’s time on 20 February. We can expect the upgrades at the next update. Shareholder consultation may be more appropriate than shareholder bodies. However, in terms of making money it also means its right to invest.

jeremy@charltonillingworth.co.uk

News

  • Randall & Quilter announced yesterday the launch of a PI policy aimed at freelance UK solicitors underwritten by Accredited Insurance (Europe) Ltd, underlining the company’s “beneficiary of Brexit” status.
  • Investec – small director sale seems off ahead of the demerger of the asset management business next month.

Plus 500 – FY Results  

Share Price 911p

Mkt Cap £986m

Conflict Disclosure: No Holding

  • Results  Results were pre announced in January which was a story of a weak H1 and strong H2 with EBITDA up 93% H2 on H1 FY EBITDA was $192.1m. Today the company annpounces it will distribute 100% of 2019 net profit to shareholders ($151m), $72m via dividend and $80m by share buy back. A new license has been obtained for the Seychelles since the year end and positive momentum has continued into 2020. The Board is confident. Year end cash was $292m
  • Estimates PBT of $190m was pre announced in January, a margin of 53% in these difficult times. Going forward a modest 10% PBT growth is expected to £203.4m. Given the H1, H2 split was $66m/$124m that would imply a H2 run rate of $248m which implies potential 22% upgrades.
  • Valuation PER on 2020 estimate as it stands is 9.7X, Yield 5.8%. IG trades at 16X and CMC at 9.8X.
  • Culture The glassdoor reviews suggest the office atmosphere is good but there are negative comments about poor customer outcomes. Exactly the reason for the regulatory clampdown.
  • Conclusion The shares are up 78% since their low last April. I am kicking myself for not owning them as it’s a question of following management purchases with this stock. The company continues to buy back their stock and there is still a way to go before they regain their £20 highs.  But it’s the porr customer outcomes that hold me back.

Arbuthnot Banking Group – Pre Close Update

Share Price 995p

Mkt Cap £148m

Conflict Disclosure: I Hold

  • Update Loan balances are up 31% and deposits up 22% over 2019 and the group expects to announce results towards the upper end of expectations. During Q4 the company saw a number of loan deals being delayed ahead of the general election and has since noticed an increased level of confidence in markets and its pipeline.
  • Estimates PBT of £8.5m is expected for 2019. 40% growth to £11.4m is expected in 2020.  From a NAV this still equates to only 5% ROE. However the shares trade at a 25% discount to NAV.
  • Valuation The PER is high at 20.4X but the shares trade at a 25% discount to NAV and yield 3.7%.  
  • Culture I enjoyed the staff review criticising it for being “basically Coutts”.
  • Conclusion Underpinned by NAV it is a question of how long it takes to outgrow its PER which could be another 2-3 years. One for the patient.

jeremy@charltonillingworth.co.uk