Hits: 15

28 November 2019

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XPS Pensions – H1 Results

Share Price 126p

Mkt Cap £258m

Conflict Disclosure: No Holding

  • Results. Revenue up 8% to £56.3m. Adjusted EBITDA up 11% to £13.3m. PBT £4.4m and adjusted EPS down from 4.2p to 4.1p. DPS flat at 2.3p. Outlook anticipates full year in line with expectations. New business pipeline is said to be healthy. Net debt £76m. Net tangible assets are negative
  • Estimates. Full year EPS is expected to be flat at 9.8p and then is expected to rise 6% in 2021.
  • Valuation PER 12.9X, yield 5.2%
  • Conclusion This stock bears all the hallmarks of a low growth business which has been leveraged by private equity and dressed up as a growth business for the stock market. The yield has some attractions but the rating looks up with events.

24 October 2019

XPS Pensions – Pre Close Update

Share Price – 110p

Mkt cap £224m

Conflict Disclosure: No Holding

  • Update H1 performance is expected to be in line with previously re set expectations. Revenue overall is expected to be up 8% driven by administration up 19%, investment up 11% and flat consulting.
  • Estimates October 2019 PBT is expected to be £24.9m which is a modest improvement on 2018 followed by 5% growth in PBT going forwards
  • Valuation PER 11.2X, yield 6%. River & Mercantile trades on 13.9X and yields 6%.
  • Conclusion The shares are now cheap but unexciting. I suspect there may be better prospects at River & Mercantile where they have more direct benefits from the CMA review.

27 June 2019

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XPS Pensions – FY Results

Share Price 160p

Mkt cap £326m

Conflict Disclosure: No Holding

  • Results Revenue up 75% to £109m. Adl. EBITDA up 51% to £27.4m and adj EPS up 18% to 9.8p. Dividend up 5% to 6.6p. The outlook guides to 5% revenue growth with a £2m step up in the cost base which will lead to a temporary impact on profit growth. Trading is reported to be in line with these expectations.
  • Estimates Results are in line with expectation but the 10% growth anticipated going forwards is coming down
  • Valuation PER 14.4 yield 4.6%
  • Conclusion The word “growth appears 27 times in the results statement.  This is not a growth market and there is a “temporary” hiatus for profits growth. Expensive.

27 November 2018

XPS Pensions – H1 Results

Share Price 165p

Mkt Cap £336m

  • Results Following the Punter Southall acquisition revenue is up 113% to £52.2m, PBT adjusted up 62% to £8.6m and Adjusted EPS up 8% to 4.2p. Dividend raised 10%. The outlook statement refers to confidence and new client wins in H2 but then says full year results are expected to be “broadly” in line. Balance sheet net assets are £148m but intangibles are £207m leaving negative net tangibles. Net debt is £47m.
  • Estimates FY March 19 estimates look for £113m revenue and £21.2m PBT, EPS of 10.3p. 46% of revenue has been delivered in H1, 40% of PBT. As cost savings from integration come through along with new client wins those number could be achievable.
  • Valuation PER 15 and yield 4.5%
  • Conclusion The company looks set to benefit from the CMA review into the investment consulting market but the valuation looks up with events.

30 April 2018

Xafinity – Trading Update 

Share Price 178p

Mkt Cap £363m

·         Update – In line both at trading level and integration proceeding well

·         Valuation – PER to March 19 is 17.5X and yield 3.8%

·         Conclusion  – I have always struggled on the valuation. I think it’s the growth narrative when there isn’t a lot of organic growth. When I questioned the risks of the CMA investigation I was told this was a growth opportunity.  However, it is a very reliable income income stream so perhaps the valuation can be justified on the grounds of a bond proxy.

7 December 2017

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Xafinity Results and Acquisition  

Share Price 173p

Mkt Cap £237m

·         Results Revenue grew 2% to £26.6m and EBITDA grew 2% to £8.7m. PBT was £4.9m and EPS 2.9p. 5 clients were won in the period.  Performance is in line with management expectations.

·         Acquisition The acquisition of Punter Southall adds £51m revenue which compares to the Xafinity forecast for £58m revenue in the year to March 19 so nearly doubling the size of the business.  The price paid is £153m which is a multiple of c 11.3X the profits they are buying, financed by £92m cash and a new £80m debt facility at c 1.75% over LIBOR.  No synergies are mentioned but the company will have 15 offices post deal and 2 are overlap and may well be combined.

·         Estimates Results are in line with expectations so this wont change estimates. Combining proforma number would provide c £30.7m PBT for a market cap of £237m plus the £70m placing shares plus the c £51m consideration gives £358m.

·         Valuation Currently Xafinity trades on an EV multiple of 14.9X EBIT. Punter Southall is being acquired on a multiple of 11.3X. Prof forma EV multiple looks like 13.35X.  So c 10% enhancement at the EV level. Increased gearing is likely to increase this at the PE level.

·         Conclusion Description of synergy is absent from the statement.  I believe the synergy is expected to be revenue synergy as a result of becoming a challenger to the big 3 consultants in the market. The big 3 have revenues of c £300-£400m each and this new challenger has revenues of c £110m.  So that’s a good story for the future which is not where the compny is today having delivered 2% growth.  The valuation seems to be pricing in upside which is yet to be delivered and in view of the CMA referral perhaps can’t be relied on. That looks up with events to me.

29 June 2017

Xafinity – Analyst meeting  

Share Price 163p

Mkt Cap £223m

·         Analyst meeting – Yesterday I commented I had no idea why anyone would own a stock whose upside is 5% growth on a PER above 19X that is about to face increased regulatory burdens.  What I learned at the analyst meeting is that it sounds like they are talking to a number of people about acquisitions. If they can use their undoubtedly overvalued paper to acquire things on correct valuations they could well accrete their earnings to a more reasonable valuation

·         Sensitivity  In order to achieve bring the PER down to 15X let us imagine they could buy a business on a multiple of 8X profits.  In order to do this by issuing paper (assuming they don’t increase the debt) that would require an acquisition of a business producing around £5m of profits.  According to Companies house Punter Southall made £9m of PBT in the year to December 2016.

·         Conclusion  The Xafinity share price is anticipating a highly accretive acquisition. It is possible the company could pull this off in the next 6 months which would justify the current price.  This is a change in my view