Hits: 21

29 June 2020

K3Capital – FY Results

Share Price 176p

Mkt Cap £74m

Conflict Disclosure: No Holding

  • Acquisition and fund raise £30.5m fund raise at 150p/share made up of a £6.96m vendor placing and a £23m company placing. The company is acquiring randd, a provider of R&D tax credit advice, is being acquired for £9.27m up front and up to £16.8m in total. randd had £4.25m revenue and £2.11m EBITDA. The trading update tells us revenue and EBITDA for the year to May 20 was £15m and £6.8m respectively. A dividend will be paid and the company is confident.
  • Estimates The £6.8m EBTDA is a little below the original £7.5m pre COVID forecast to May 20. The statement says the acquisition is expected to be immediately earnings enhancing. Initial consideration is 4.4X EBITDA while the company trades at 10.8X. The dilution of the fund raise may be made up by further acquisitions. 
  • Valuation The initial consideration for randd is 1.9X revenue while K3C trades at 4.9X revenue. Pro forma revenues will be c £20m and if the company was to achieve a 45% operating margin that would equate to a market cap/EBITDA of 11.7X.  If we use an EV we get 9.5X.
  • Conclusion This acquisition adds recurring revenues, 588 new customers and importantly a 50% margin growth business that can leverage K3C’s online marketing IP. This well run company will reward shareholders well.

25 March 2020

Image result for smiley applause

K3Capital – Trading Update 

Share Price 136p

Mkt Cap £57.6m

Conflict Disclosure: No Holding

  • News For the  months to March the company has achieved revenue of .m and EBITDA of 6.5m. Further transactions may complete ahead of the May year end. The company has achieved salary sacrifices across the board and senior management team and furloughed a proportion of the workforce under the government’s job retention scheme. Consequently monthly overheads are expected to reduce by 7o% from April and the company expects to be EBITDA positive in April and May. The outlook is constructive in noting that many buyers will be looking to expand through acquisition at the moment. Beyond that no one has a scooby.
  • Estimates FY to May expectation was for 7.5m EBITDA and 6.5 to March was tracking ahead.
  • Valuation At the half year the tangible NAV was 4.1m. Cash 6.8m.  
  • Conclusion Most companies are raising the white flag on updates at the moment. Few can take decisive and drastic action as well as achieve break even in the face of a dramatic decline in their revenues. Investors have often criticised the lumpy nature of this company’s revenues and this response should ensure this company merits a core holding status to a broader range of investors going forwards. This is a time when quality management proves itself.

4 February 2020

A picture containing clipart

Description automatically generated

K3 Capital – H1 Results 

Share Price 248p

Mkt Cap £104m

Conflict Disclosure: No Holding

  • Results Revenue of £8m and adjusted EBITDA of £3.5m which is a useful increase on last year’s £3.1m. EPS up 7% to 6.25p. DPS up 3% to 3.7p. EBITDA margin of 44% evidences the presence of some IP. The all important outlook refers to record WIP, welcoming the general election result. A 57% increase in the volume of buyers and a 26% increase in offers bodes well. The company also refers to potential acquisitions.
  • Estimates Full Year EBITDA is forecast at £7.5m, anticipating £4m in H2. This compares to the weak H2 last year when £1.9m EBITDA was delivered.
  • Valuation The PER of 17.5 is relatively high but with lumpy revenues this is more a play on earnings than a valuation play. Yield 4.6%.
  • Culture The company has a motivated “eat what you kill” culture and scores a good 4 on Glassdoor. Reviews include a “fun” environment with the free fruit, coffee and the early finish on Fridays.
  • Conclusion This is a company in structural growth but with lumpy revenues. As it gains scale the lumpiness will reduce.  This could be a good year and it may be reasonable to expect upgrades over the year. Despite recovering 60% since the election it may not be too late.

16 December 2019

Image result for excited smiley

K 3 Capital Group – Trading Update 

Share Price 223p

Mkt Cap £230m

Conflict Disclosure: No Holding

  • Update “Double Digit” increase in revenue and EBITDA H1 to 30 November with operating margins above 40%. Number of transactions up 30% but made up of largely smaller transactions. Strong pipeline importantly with “strong” transaction values. The board welcomes political stability.
  • Estimates The company reports it is condfident of meeting market expectations. Forecasts assume a 35% revenue increase in the year to May 2020 to £18.4m and a 50% increase in EBITDA to £7.5m which equates to a 40.7% operating margin.
  • Valuation PER 15.7X, yield 5.1%
  • Conclusion This is a bet on earnings rather than valuation. It surprised me to see the shares fall on Friday as the market enjoyed a Boris bounce. If I was looking to sell my business I would start thinking about it now we have political stability having held back over the last 3 years. This company could have a cracking few years ahead.

17 September 2019

A picture containing clipart

Description automatically generated

K3Capital – FY Results 

Share Price 167p

Mkt Cap £71m

Conflict Disclosure: No Holding

  • Results – Revenue was down 18% to £13.6m driven by a reduction in the larger transactions completing. £5m EBITDA is a little ahead of expectations but as previously guided at the top end of the range. Net cash was £5.8m. EPS 9.43p and a reduced dividend maintaining the 80% payout ratio 7.6p DPS. The all important outlook statement has one key line “corporate finance transaction fee income in Q1 20 has exceeded the year FY19”. It concludes the company is “confident”
  • Estimates – £4.6m EBITDA was anticipated for May 2019.  £7.5m EBITDA estimate for 2020 is a big increase and is in tact from the original IPO I believe.  With the lumpy transactions coming through in Q1 we can all relax.
  • Valuation PER 13.9X May 2020 with a yield of 6.9%.
  • Conclusion Goin up

20 August 2019

A picture containing clipart

Description automatically generated

K3Capital – Private Equity Deals  

Share Price 141p

Mkt Cap £60m

Conflict Disclosure: No Holding

  • Report KPMG’s report yesterday that H1 PE deals were 35% below the prior year seems strangely encouraging to me. The volume of deals was 384, down from 594 while the value declined 40% to £28.5bn. The TMT sector accounted for 66% of the value of the deals. The slowdown was reported to be something to do with Europe. 2 Conclusions If PE funds are sitting on their hands until after October with value now beginning to emerge we could have a surprising number of deals at the back end of the year which would help markets.  But it is a concern for K3Capital. Specialising in deals at the smaller end where the slowdown is sharpest wont help them.
  • Estimates The 5 June trading update for the year to May said the company expected results to be at the upper end of forecasts which are for a 38% reduction in PBT to £4.5m. Results are due on 17 September. An increase to £7.5m PBT is expected in the year to May 2020.
  • Valuation The shares trade on 10X the forecast to May 2020 and yield above 10%.
  • Conclusion |This looks like a case of the KPMG report lagging the reality that was reflected in K3C forecasts a while ago and if we do get an uptick post that Europe thingy this could be a useful time to pick up these shares.

5 June 2019

A picture containing clipart

Description automatically generated

K3 Capital – Trading Update 

Share Price 109p

Mkt Cap – £46m

Conflict disclosure No holding

  • Update Adjusted EBITDA for the year to May is expected to be at the upper end of market guidance and revenue is expected to be in line.  The pipeline is strong and the board is confident for the year ahead.
  • Estimates The 5 April update guided to £4.5-£5m of EBITDA, so lets read that as £4.9m. For May 2020 £7.5m EBITDA is forecast and the company reports it is “confident”
  • Valuation 2020 PER is 7.8% and yield above 10% on 2020 numbers. There is no word on this years dividend in todays results.
  • Conclusion Having been at 355p last September the shares were overvalued. Now they have gone to the other extreme. Opportunity for those that are quick.  

4 April 2019

Image result for crying smiley

K3 Capital – Trading Statement 

Share Price 160p

Mkt Cap £67m

Disclosure- No holding

  • Statement The large transactions referred to at the time of the interims continue to be at an advanced stage but are taking a long time to close. Consequently the company takes the view they are unlikely to close by their May year end.  The smaller transaction volumes continue to grow.
  • Estimates As a result the company expects the EBITDA for the year to be £4.5m-£5m. Which compares to c.£7m that was anticipated. This compares to £3.1m that was reported at the half year so c. £1.5m EBITDA in H2. £4.5m EBITDA may be in the region of 8.5p EPS vs 13p previously.
  • Valuation PER 18X the downgraded EPS number. The shares have come back from almost halved on the back of concerns over the larger transactions highlighted at the half year.
  • Conclusion The concern in this business has always been lumpy transactions. The business remains an innovative business model which takes market share and the reason for long closure times is entirely rational at the moment. Which implies this is a time to buy the shares as lumpy transactions is a double edged sword.  The shares could test levels towards £1 today. If there is any liquidity at those levels it will be a gift for a buyer.  

21 January 2019

K3 Capital – H1 Results 

Share Price 275p

Mkt cap £116m

  • Results Revenue was £7.2m (2018 A £7.5m) and EBITDA was £3.1m (2018A £3.3m) and EPS 5.84p (2018A 6.1p) Dividend was up 26% to 3.6p which the outlook statant says reflects management confidence. The statement refers to record WIP.  The corporate and Knightsbridge division increased revenues by 17% and 19% respectively while the more lumpy corporate finance division was down on account of the timing of deals. Outllo is confident for the full year and beyond
  • Estimates anticipate a modest reduction to EPS of 13.1p in year to May 18 from 14.1p EPS which is a full year EBITDA expectation in the region of £7.1m.
  • Valuation The PER is 21X current year (May 19) and the yield is 4.1%.
  • Conclusion On the face of it the rating may appear full for a company reporting a reduction in EBITDA. However, the estimates are in tact as the company manages expectations well. The data and technology in the business merits a premium rating and for now the price looks fair. The company has the ability to take significantly more market share.

11 September 2018


K3 Capital – H1 Results   

Share Price 327p

Mkt Cap £138m

·         Results. Revenue up 53% to £16.5m, marginally ahead of our £16.2m estimate (2017A: £10.8m). EBITDA up 64% to £7.4m (2017A: £4.5m) beating our estimate by 5.7%. Very attractive EBITDA margin improvement up from 41% to 45% helped by administration expenses growth of just 32% and variable staff costs as a percentage of revenue down to 11.8% from 13.6%. Net cash up 121% to £7.5m (2017A: £3.4m). All KPIs are improving with strong revenue growth across all three business segments: Knightsbridge +24%, KBS Corporate +43%, KBS Corporate Finance +78%. Deal fee income up 65% to £9.5m (2017A: £5.8m).

·         Estimates. We upgrade our 2019E revenue number to £16.6m from £15.1m while our 2020E number moves up to £17m from £16.7m, driven by K3’s innovative ways of driving revenue through technology. Our EBITDA estimates move up to £7.1m from £6.5m (2019E) and £7.5m from £7.1m (2020E). 2021 numbers are also now included.

·         Valuation. We upgrade our price target to 375p. K3’s PER FY1 is now in line with similar businesses producing comparable EBITDA margins and ROE, driving the rationale for our price target (see comps table on page 7).

·         Conclusion. A year of significant growth that proves K3 Capital’s innovative approach to generating M&A deals is proven to work, disrupting the traditional relationship model and increasing efficiency through accurate and detailed data, manipulated by bespoke technology to deliver increasing volumes of sellers, buyers and transactions. The company’s innovative use of technology significantly lowers costs driving scaled growth of revenues. This has been the first full year as a public company and the results speak for themselves. K3 Capital have already emerged as the market leader and are likely to deliver substantial long term shareholder returns.