Hits: 23

27 July 2020

JTC – H1 Update

Share Price 481p

Mkt Cap £589m

Conflict Disclosure: No Holding 

  • Update Results are expected to be in line with management expectations. Medium term guidance of 8%-10% organic growth remains with 33%-38% EBITDA margins. 
  • Estimates 2021 revenue growth of 16% is anticipated bolstered by the acquisition of Sanne private clients and NES, reducing to 8% in 2022 at 35% EBITDA margins. 
  • Valuation EV/EBITDA 14.3X. PE 17.1X. 
  • Conclusion I have a been a little bit uncomfortable that the organic growth is cross selling and so will cease when acquisitions cease. But the acquisitions continue and the shares are highly rated ensuring an acquisition currency. The company has also demonstrated its resilience. Looks set fair but this isn’t a “forever” stock.

16 March 2020

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JTC  – Acquisition 

Share Price 406p

Mkt cap £463m

Conflict Disclosure: No Holding

  • Results. Acquiring the business and assets of Sanne’s private client business in Jersey. Price is capped at £12m payable in cash at completion. That is 2.3X the £5.3m revenue and it is expected to be immediately earnings enhancing wit the transaction delivering at least JTC group wide EBITDA margin of 33%. That implies an EBITDA multiple of 6.8X
  • Estimates EBITDA for Dec 2020 is expected to be £30.5m, so potentially this could add 5-6%
  • Valuation PE 19.2X yield 1.3%
  • Conclusion Transaction looks usefully priced and sensible. But these shares are expensive and this is one of those stocks where I suspect the high organic growth number is in reality cross selling services which when acquisition stop so will organic growth, making it a very dangerous stock for the medium term .

23 January 2020

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JTC Plc – FY Trading Update 

Share Price 425p

Mkt Cap £485m

Conflict Disclosure: No Holding

  • Update Organic growth is said to be 8-10%. Private client services is said to be particularly strong.  A number of interesting M&A opportunities are being seen. Credit facility has been increased to £150m. Results expected to be in line with expectations.
  • Estimates £26.5m PBT is expected to Dec 2020 which is 20.9p EPS. This is expected to grow 14% in 2020.
  • Valuation PER 20X, Yield 1.2%. EV/EBITDA 22X
  • Culture I have an in built mistrust of the private equity background of this company. Organic growth is abnormally high for this stable business and in the past situations such as this have shown a disappearance of organic growth when acquisitions stop. Hence I am seeing this as a quoted private equity style culture.
  • Conclusion  The debt facilities are now 4.4X EBITDA.  Current share prices suggest they could raise equity at this strong valuation but the day the company can’t do that there is plenty of downside. 

17 September 2019

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JTC Group – H1 Results 

Share Price 475p

Mkt Cap £452m

Conflict Disclosure: No Holding

  • Results Revenue up 32% to £46.6m. Underlying EBITDA up 35% to £14.3m which is a healthy 30.6% EBITDA margin. Net debt is £60.9m, which is a full 1.9X pro forma EBITDA. Organic growth calculated at 8.2% and new business enquiry pipeline of £33.1m. Outlook is confident for 2019 and beyond.
  • Estimates Full year PBT of £28.5m is anticipated, EPS 22.5p, from which a 5.3p dividend is expected.
  • Valuation PER 21X Dec 2019, yield 1.1%
  • Conclusion These are good results.  I really don’t see the structural growth the company refers to so regard this company as an acquisition machine engineering organic growth from cross selling. Consequently with a leveraged balance sheet there could either be a placing or growth slows.  I would be saying thankyou for the 45% share price appreciation this year.

22 July 2019

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JTC  – H1 Pre Close Update  

Share Price 352p

Mkt Cap £397m

Conflict Disclosure: No Holding

  • Update The company is said to have performed well with results expected to be in line with expectations. Both organic and inorganic growth opportunities are being seen. Organic growth target of 8%-10% is re iterated and the 30-35% EBITDA margin objective.
  • Estimates.  32% revenue growth is anticipated for Dec 19 to £102m with a 33% EBITDA margin.
  • Valuation  PER 14.5X and yield 1.63%. The shares have derated and are off 12% over 12 months.  
  • Conclusion Shares are looking better value but the organic growth target is unsustainable as it is derived from cross selling to acquisitions. When the acquisitions dry up so will organic growth.  

3 April 2019

JTC – FY Results  

Share Price 300p

Mkt Cap £338m

Disclosure No holding

  • Results Revenue up 29% to £77m. Underlying EBITDA up 65% to £23.8m. Adjusted EPS up 33% to 18.4p. Statutory EPS was negative 3.9p. Net debt is £48.7m and a final dividend of 2p is proposed. Outlook – trading is in line and the group sees further opportunities. Divisionally institutional revenue was up 20% and private clients up 43% over the year.
  • Estimates These results are in line with expectations and going forward 28% revenue growth is expected delivering 22p EPS.
  • Valuation PER 13.7 yield 1.8% EV/ EBITDA is 6.6X
  • Conclusion I am sceptical that this acquisition machine delivering alleged organic growth through acquiring businesses and cross selling is unsustainable.  The company strips out £4m of acquisition and integration costs from results but includes the revenue synergy as organic growth which seems like a mis match to me.  But just now it has the wind behind it.

26 March 2019

JTC – Acquisition 

Share Price 299p

Mkt Cap £332m

Disclosure – No holding

  • Results JTC acquires the Luxemburg based corporate and private wealth service provider Exequtive Partners for up to Euro 34m on an earn out. Last year EP made a profit of Euro 61k and EBITDA of Euro2.5m. 
  • Estimates The transaction is expected to be immediately earnings enhancing. Initial consideration is Euro 25m which is 10X EBITDA paid 72% in cash. This should add 11% to earnings while new shares initially issued are 2.7% of the market cap so the transaction look c 5-8% earnings accretive.
  • Valuation PER 13.8X and yield 1.8%
  • Conclusion Personally I am a little cycnical that organic growth is being manufactured through cross selling to acquisitions as the underlying market is not a growth market. Net debt is c £17m so they can keep the acquisition machine going for a while so the shares look good short term but at some point………………

24 January 2019

JTC -Trading Update 

Share Price 363p

Mkt Cap £402m

  • Update A brief statement saying that momentum has been maintained across both divisions and results are in line with expectations. The two acquisitions have been integrated as planned
  • Estimates Unlikely to change
  • Valuation PER 16.6X Yield 1.5%
  • Conclusion The organic growth is derived largely from the cross selling of new products and services to acquired companies which is finite. Given there is little genuine underlying organic growth the shares are too highly rated it would seem to me.

21 September 2018

JTC – Organic Growth 

Share Price 392p

Mkt Cap £419m

·         Organic Growth Results on Tuesday said that revenue was up 25% to £35.3m. The company said of the 25% growth 8% was organic while 17% was acquired growth.  So that is £2.5m organic and £4.8m acquired. The prospectus tells us that the two acquisitions last year were NACT and ITWS. ITWS was completed in September 2017 and added £2.3m revenue last year,  If we assume no cyclicality that would suggest it should add £4.6m in H1 2018 which is almost all of the acquired growth declared in H1 2018.  NACT was acquired in July 2017 and added £0.9m revenue last year for the 5 months of ownership.  That may therefore be expected to add £1m in H1 2018 giving a total acquired growth number of £5.6m in H1 2018 against the £4.8m declared.  Then the company says in their results that in H1 2018 £1.6m of revenue growth was achieved from providing new restructuring services to ITWS clients. If that was the case one might expect £7.2m of revenue growth in H1.  Given the company achieved £7.1m of revenue growth in H1 it seems likely that underlying organic growth without cross selling to new acquisition was close to none.

·         One off costs In the prospectus £108k was charged as a one off cost to integrate NACT and £1.52m to integrate £1.52m as well as £200k to reorganise the management team ahead of the IPO. Note 7 in the H1 results released on Thursday tells us another £93k has been charged to reorganise the senior management team post IPO as well as a further £2.1m to reorganise the acquisitions made last year. The only reason this feels odd is that page 90 of the prospectus says “Since acquisition both businesses have been successfully integrated and revenue and cost synergies are expected to be realised in the 2018 financial year”. That doesn’t seem to guide to an expectation that the integration was still happening in H1 2018.

·         Valuation PER 23X. Yield 0.8%.

·         Conclusion  The shares are too expensive when underlying organic growth may not be quite as exciting as it sounds.