JTC/MANO/BUR/WHI

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JTC – Acquisition

Share Price 430p

Mkt Cap £490m

Conflict Disclosure:No Holding

  • Update – £32.3m initial consideration for the acquisition of a US based specialist fund administration business, NES Financial, payable largely in shares. The business broke even last year from £10.5m revenue, so the price is 3.05X revenue. Adjusting out the SaaS start up losses the EBITDA was $1.8m so the price is 22X adjusted EBITDA.  In 2020 EBITDA is expected to be $3.2m where the acquisition multiple reduces to 12.6X. There is a $10m new business pipeline.
  • Estimates – JTC trades at 4.9X revenue and a PER of 20X Dec 2019. Net debt at June 2019 was £61m so EV/EBITDA is 16X. This may therefore be marginally EPS enhancing and with the acquisition being largely for shares will de lever the business also.
  • Valuation The shares are 5% off their high in February and are anomalously expensive in the current market at 16X EV/EBITDA.
  • Conclusion This is an acquisition machine which reported 8.2% organic growth in H1. This is another example of the company acquiring organic growth. Well done to the company for using over priced shares to acquire growth.

Manolete – COVID 19 Update

Share Price 370p

Mkt Cap £161m

Conflict Disclosure: No Holding

  • Update Activity levels in March are high with 50 new case enquiries, 15 new signed cases and 8 completions. For the 12 months to March 20 the company reports gross proceeds of £10.1m which is £2.4m in H1 followed by £7.7m in H2 alongside a 131% increase in new cases to 141.The company notes progress in the courts has slowed but few of their cases proceed to court. No mention of dividends.
  • Balance Sheet At September 2019 the company had £31m net assets and cash of £3.1m accompanied by an unutilised £20m HSBC revolving credit facility.
  • Valuation Based on the March 20 estimate the PER is 19.7X falling to 14.7X. That is a 30% ROE and the shares trade at 5.3X book value.
  • Conclusion Forecasts are for 30% profit growth followed by 18%. This remains a fund which uses capital extremely efficiently. I suspect it can generate enough cash and recycle it to achieve the next few years growth without raising equity, which means it will grow into its valuation within 18 months.

Burford – COVID 19 Update

Share price 386p

Mkt Cap £844m

Conflict Disclosure: No Holding

  • Update New business is expected to slow short term but economic disruption generates litigation in the long term. Burford’s liquidity is said to be more than sufficient with $161m cash, $180m short duration investments and $758m of undrawn wealth capital, but the dividend will be withheld. Due to court delays it is reasonable to expect cash proceeds from litigation resolutions to be lower in the near term. CEO and CIO bonuses to be committed to buying shares in the market.
  • Valuation For those that believe the NAV it is expected to be $1.46bn at Dec 2019, so the shares trade at a 28% discount. In PE terms the shares trade at 4.1X.
  • Conclusion The cutting of the dividend and bonuses being committed to share purchase in the market doesn’t inspire confidence. Cheap and increasingly risky if cash receipts slow.

WH Ireland – Trading Update

Share Price 41p

Mkt cap £20m

Conflict Disclosure: I consult for the firm

  • Trading Update The changes in the rate card achieved a profit in January but as markets fell the company made a loss in February and March. A loss is expected in the year to March 2020 of £2.2m on revenue of £21.3m.This implies revenue of £10m in H2 and a loss of £0.8m in H2 (H1 £1.4m). Costs are being further aligned with remuneration being moved to be more variable.
  • Balance Sheet NAV was £7.4m at September (cash £4.1m) since when £2.8m was raised in a placing.
  • Conclusion When the company achieves profitability there is significant upside. A little longer to wait in the current market.

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