K3C/EQLS/ANX

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News 

  • MorsesClub – The emoney rules are set to be tested as Morses “U account” product, which accounts for 2% of MorsesClub revenue has been frozen. The customer balances are held with Wirecard in a client account at Barclays.
  • Randall & Quilter – Another captive acquisition announced
  • TBC bank launches operations in Uzbekistan
  • WH Ireland disposes of Isle of Man office for £250k and £412k deferred
  • NSF announces that the £200m facility securitisation provider has agreed to extend the waiver. 

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.

Equals Group – FY Results

Share Price 34p

Mkt Cap £60m

Conflict Disclosure: No Holding

  • Results These are December year end results. Revenues +18.6% to £30.9m made up of 81% growth in B2B and -1% in B2C. B2B now accounts for 56% of the revenue. Adjusted EBITDA was up 21% to £9.1m while the reported loss after tax was £5.4m.  There is a goodwill write down but the company has also stripped out IFRS 16 depreciation from its adjusted EBITDA. Cash at June 2020 was £7.7m and revenues in 2020 are tracking in line with prior year since December. Outlook looks forward with confidence. The company uses wirecard as one of its 3 options for the B2C activities. The company says revenues have increased from the COVID lows in April.
  • Estimates Revenue and EBITDA looks like a c 5% miss for last year. Going forward the 40% growth in EBITDA pre COVID may be optimistic.
  • Valuation The EV is £52m which equated to 5.7X adjusted EBITDA.
  • Conclusion Cheap but the company has been moving fast and hitting speed bumps. With a large number of acquisitions the risks are high. Argentex of Alpha Fx may be lower risk.

 

Anexo Group – FY Results

Share Price 140p

Mkt Cap £163m

Conflict Disclosure: No Holding

  • Results These are December results. Revenue up 39% to £78.5m. Adjusted operating profit up 47% to £25.2m. EPS 17p. Total dividend flat at 1.5p. Net assets £91.7m, net debt £27.7m and net cash outflows were £0.8m. During COVID the company has been cash generative but declines to provide guidance.
  • Estimates Revenue was in line with forecasts but EBITDA lower. Modest PBT growth of 2.5% was expected prior to guidance being withdrawn.
  • Valuation The NAV is tangible NAV of £91m, of which £127m is receivables. PE historic 8.2X.
  • Conclusion The crucial difference of having a law firm to collect the debtors marks this company out from previous credit hire disasters, but the model remains highly capital intensive. With an ROE of 20% and a modest valuation the company is cheap and should provide good returns, though it is hard to argue for a high rating.

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