17 June 2020
Share Price 28p
Mkt Cap £17m
Conflict disclosure: I Hold
- Update Trading in the first 4 months have been in line with expectations. The roll out of IT and other projects is improving operating margins while the company is persuing acquisitions in the niche pensions administration market. Some flexible annuities are taking longer than expected to convert during lockdown.
- Estimates With trading in line it seems that forecasts may stay in tact but the door has been left open for a downgrade with the delay in conversion of flexible annuities.
- Valuation Dec 20 PE 7.7 falls to 4.5X in 2021. Net cash of £20m is more than the market cap, though only a small part of that is accessible and surplus.
- Conclusion The company has suffered multiple downgrades over 3 years as extra costs have been put into the business. At this valuation no change is good news. With a strong balance sheet and acquisitions available an extended period without downgrades could do good things for the share price.
27 November 2019
STM Group Plc – Trading Update
Share Price 43p
Mkt Cap £26m
Conflict Disclosure: I Hold
- Update Relaunch of the Carey pension products has taken longer than expected and the Master Trust application took longer than expected. New business in pensions is slower than expected. The trust and non core companies have also been slower than expected. It costs are going up. PI costs are increasing by more than £0.5m and there are professional cost increases. However, the board is confident in the strategy.
- Estimates PBT is expected to be £3.8m reported and £2.5m underlying from £23m revenue. Existing forecasts anticipate £4.1m in 2019 PBT and a 10% increase in 2020. This looks like a 40% downgrade.
- Valuation If we reduce EPS underlying by 40% we get 3p EPS which puts the shares on 14X. The dividend of 2.2p is still covered and would represent a 5.1% yield.
- Conclusion This is a clean sweep of disappointments, and may call into question the acquisition strategy given the strong balance sheet. However, the core QROP and SIPP revenues remain resilient, the balance sheet is strong, and the company is profitable. These safeguards suggest there could be a positive result for shareholders in the end, and so it goes into my “buy on the warning” box. I suspect it could get to 35p or lower today.
10 September 2019
STM Group – H1 Results
Share Price 40p
Mkt Cap £24m
Conflict Disclosure: I Hold
- Results Underlying Revenue up 7% to £11.6m. Underlying PBT down from £2.1m to £1.6m as the margin declined from 23% to 20%. The company has been investing in senior hires and IT infrastructure and the outlook says the second half is about concluding the initiatives started in H1 and they have strong expectations of a revenue and PBT uplift as a result of recent investment. Gross cash is £18.1m
- Estimates The £4.4m PBT expectation as I understand it includes the one off gains, so these results look to be in line with expectation with the company reporting £3.4m of PBT in H1.
- Valuation This is a year of one off gains and costs. Looking at 2020 forecasts anticipate £4.7m PBT, which is 6.2p EPS and a 2.4p dividend. That’s a PER of 6.5X and a yield of 6%.
- Conclusion Cheap as it comes with a year of investment while the company is becoming a more UK focussed business. Next year this could perform very well once the costs of extra infrastructure are fully embedded.
20 June 2019
STM Group Plc – Operational Update
Share Price 48p
Mkt Cap £28m
Conflict disclosure: I hold
- News – There are a number of one offs. Negative goodwill of £2.7ml on the Carey Pensions SIPP business accompanies by £0.5m integration costs of £0.5m in 2019 and £0.7m of cost savings to benefit 2020. A new Target Operating Model has been adopted together new NED’s for the model will also add £0.5m operating costs “in the short term”. The exit from the insurance management business will also incur a £0.7m goodwill write down. The Carey business is gaining more new business in the corporate sector and we be centred on Milton Keynes.
- Estimates – At the underlying level the extra operating costs for the new target operating model sound like we may have a £0.5m downgrade for 2019. But the prospects for 2020 sound quite exciting with a faster growing UK pensions business centred out of Milton Keynes. Forecast for 2019 are for £4.1m pre tax which may therefore come down while the £4.4m for 2020 looks safe.
- Valuation PER is 8.8X and yield 4.2%.
- Conclusion As this business becomes increasingly UK centric it will become more investable. The short term downgrade for extra infrastructure will also help the future prospects while the strong balance sheet will enable the company to benefit from further acquisitions. Todays statement reiterates their acquisitive ambitions. This could turn into a swan.
26 March 2019
STM – FY Results
Share Price 46.5p
Mkt Cap £27.4m
Disclosure No holding
- Results For a £27m market cap the adjustments to revenue and PBt will make this not worth the effort for many. However flat revenues and profits mask modest underlying revenue growth to £20.5m and underlying PBT growth to £3.7m (FY17 £3.2m) delivering an improvement in margins to 18%. Net cash is £15.6m providing scope for further acquisitions and the dividend is up from 1.2p to 1.3p. The outlook statement refers to opportunities for well funded operators and product development.
- Estimates Results look in line. Going forward an 11% increase in earnings is expected
- Valuation PER 8.6 yield 5.4%
- Conclusion I believe the 3 year strategy is very exciting with opportunities for consolidation as well as geographical expansion. Just there isn’t much detail on that in today’s announcement. I can’t see it getting traction short term but I suspect having had a period of investment in governance and with a growth strategy armed with a strong balance sheet the probabllity is in 3 years time we will wonder why we didn’t buy it 3 years ago.