The 5% reduction in the TBV/sh is reversible while goodwill impairments did not come as a surprise as confirmed by the group’s depressed P/BV ratio. The same thing as regards DTA adjustments which reflect management’s view that profits will not return to normal levels for two or three years in spite of a rapid top-line recovery. However, capital generation should remain at enviable levels if FX headwinds disappear.
Companies: Banco Santander SA
As expected, the Q1 results were impacted by the anticipation of the COVID-19 impact. Annualised loan provisions are commensurate, albeit lower, with our full-year projections. It is tempting to conclude that, from a macro-economic perspective, the worst is already largely priced in. Unfortunately, we continue to be wary about a potential sovereign risk revival be it in emerging countries or within the Eurozone. Within this perspective, the group’s double exposure to both LatAm and Spain does not make it the safest bet.
The quarter enjoyed a strong 4.9% equity generation (before dividends) and reduced capital usage. While it showed some margin pressure and inflated cost of risk, restructuring efforts seem to have borne fruit with an improved efficiency. Management’s guidance on future EPS trajectory is reassuring.
The quarter was marked by the unsurprising capitulation over the real value of the UK business. Once again, the quarter demonstrated the sustainability of the group’s operating profitability. Unfortunately, some regulatory inflation diluted the impact in terms of capital generation.
The group posted a strong set of quarterly results, driven by net interest margin expansion and depressed at a reported level by largely expected non-recurring charges.
The first quarter results confirmed previous operating trends. Organic capital generation, in line with objectives, was offset by non-recurring factors.
The market remained relatively unimpressed by the group’s updated strategic plan. Financial objectives would probably need a precise deadline to be taken more seriously. More generally speaking, they are articulated around a potentially too optimistic vision of the macro-economic scenario and digitalisation benefits.
The incident of SAN’s CoCo reveals the danger of playing with the gender of capital. Fortunately, this time this should have marginal consequences.
As expected, the quarter showed ongoing top-line momentum and a stable operating performance. At this stage, the slight quarterly deterioration in asset quality trends just corresponds to a normalisation after particularly benign conditions and is therefore not worrying.
The group posted a good set of earnings showing strong top-line momentum and cost control in a context of stable asset quality. The underlying performance was diluted by adverse currency moves.
We believe that Mr Orcel’s arrival has to be analysed in the context of the group’s digital ambitions which are seen as requiring vision more than risk management skills. In the short term, the share price will remain largely driven by the evolution of the market’s sentiment vis-à-vis emerging markets.
The quarterly results, which were in line with expectations, showed improved underlying profitability driven by a benign (and probably unsustainable) cost of risk and further reduction in capital intensity. Management reiterated its full-year guidance including notably the commitment to a (probably low) double-digit EPS growth.
No news is good news. First quarter results were in line with expectations, enabling management to confirm its full-year guidance, and announce a dividend increase and a move to full cash distribution as of next year.
The fourth quarter enjoyed strong excess capital generation boosted by a further reduction in capital usage. 2018 is expected to confirm 2017 trends with the UK remaining the only challenging region in terms of volumes and margins. Profitability should continue to improve supported by rapidly increasing loyal customers and an aggressive digital strategy. Large tech companies are expected to take market shares but management is confident new growth opportunities will more than offset this.
The group released a good set of results which were in line with management’s guidance. Asset quality remained stable in all markets including the US, thus enabling the group to confirm its cost of risk guidance for the next couple of years. Earnings generation was equally spread between the Americas and Europe, while growth continued to be driven by developing countries.
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Litigation Capital Management has announced FY20 results with gross profit up 7% to A$21.7m and PBT of A$9.2m, slightly behind expectations albeit the Group had already flagged that delays to 3 cases during the year would result in resolutions in FY21, thereby impacting FY20 results. That said, excellent strategic progress through the year and good news flow as well as increasing scale suggests more value to come. Reiterate buy
Companies: Litigation Capital Management Ltd.
To achieve YoY revenue growth over H1/20A despite the challenges of Covid-19 and its impact on the travel sector is testament to Equals' resilience and increasing focus on B2B and International payments services. While weaker gross profit and EBITDA margins have impacted profitability in H1/20, we see potential for an earnings recovery in H2/20 given cost reduction measures currently being undertaken. This should lead Equals to cash breakeven in Q4/20 and FCF positive by early FY21.
Companies: Equals Group Plc
FY20A results largely reflect a period prior to the Covid-19 lockdown, yet show Duke entering a more challenging FY21E with momentum. Yesterday's trading update demonstrated another notable rise in quarterly cash receipts for Q2/21, as royalty partner trading continues to improve. As some partners' forbearance measures will expire this month, Q3/21 receipts should continue this upwardly momentum. This opens the door to a return to cash dividends at some future point. Today, Duke also confirms it is now seeking new royalty partners, alongside follow-ons.
Companies: Duke Royalty
In June, faced with the task of replacing its longstanding portfolio manager, Alistair Mundy, Temple Bar Investment Trust’s (TMPL’s) board reiterated its commitment to a value style of investing. The board has now opted to hand the management contract to Nick Purves and Ian Lance of RWC Partners, two managers with considerable experience of managing income portfolios using a value-style approach. Value investing, where managers buy stocks that are valued more cheaply than market averages – based on measures such as price/earnings, price/book and yield – is deeply out of favour. The RWC team says that value stocks have never looked more unloved in the 30- odd years that they have been managing money. In their view, this makes it imperative that TMPL investors keep faith with the strategy and it also means this is an attractive entry point for new investors. One important change, however, is a cut to TMPL’s dividend to a level that the RWC team believes will be more sustainable.
Companies: Temple Bar Investment Trust
Sigma Capital (“Sigma”) has partnered with global alternatives manager EQT to deliver and manage a £1bn GDV private-rented sector (“PRS”) housing fund focused on Greater London. EQT will invest £300m equity, complemented by debt (including a Homes England facility), to build 3,000 homes in 5 years. Sigma will generate fee income as development manager, a recurring fee income stream from managing completed assets, as well as participation in returns via a minority co-investment (£16m) and a profit share. We estimate that the fee income alone is worth £45m to Sigma in the first five years: 50% of the current market cap. Crucially, this is a step up in AuM bringing a high quality long-term recurring earnings stream. We will reforecast following interim results (expected tomorrow) to provide full context.
Companies: Sigma Capital Group Plc
Interim results demonstrate YoY growth and a resilient outcome that has exceeded management's expectations from the start of the Covid-19 pandemic. This is testament to the degree of recurring revenue generated across the business. FY21 trading looks to be more challenging, as notably lower new insurance sales post-lockdown will translate into lower premium income. A number of organic opportunities are being worked on to fill the shortfall. Rising UK redundancies and their impact on policyholder retentions creates great uncertainty, hence our forecasts remain withdrawn and recommendation remains Under Review.
Companies: Personal Group Holdings Plc
HSBC’s future should be clarified as soon as the US and China come back to the negotiation table. This will not happen before the US elections are over. In the meantime, HSBC will continue to be instrumentalised and its share price will remain under pressure.
Companies: HSBC Holdings Plc
L&G reported an operating profit from continuing divisions (excluding Mature Savings and General Insurance businesses) of £1,128m, -2.2% yoy. The COVID-19-related cost was £129m. LGR posted a growing operating profit to £721m. Net profit amounted to £290m vs. £874m a year before, being affected by the reduced discount rate used to calculate LGI reserves. The Solvency II ratio stood at 173%. The Board recommended an interim dividend of 4.93p/share, stable relative to H1 19.
Companies: Legal & General Group Plc
In line interim results to 30 June 2020 show the strength of this business amid a difficult environment. This is the first step in what should be an exciting growth trajectory toward a larger, scaled up business with high recurring revenues and ownership of the full supply chain in the personal injury and clinical negligence market for clients requiring long-term, risk-adjusted returns. We reiterate our TP of 50p, noting further upside potential as acquisitions are completed.
Companies: Frenkel Topping Group Plc
Today's news & views, plus announcements from VOD, POLY, SMDS, BLND, BYG, WEIR, DC, SNR, SHI, INTU, IHR, CNC, ARE, INCE
Companies: INTU SHI INCE
The impressive full year 2019 results included some eye-catching numbers, including a record PBT of £40.1m (nearly 3x FY18 @ £14.3m), £620m of reserves acquired over 16 legacy deals, and $842m of (estimated) Contracted Premium in the Program business – on track to breach $1bn in FY20 as previously guided and $1.5bn-$2bn in 2022-2023.
Companies: Randall & Quilter Investment Holdings Ltd.
Mercia’s FY20 results reflect continued progress, delivering on management’s three-year strategy. AUM climbed 58% to £0.8bn, while FUM rose 73% to £658m. Following the acquisition of the NVM VCT fund management business, the company is operationally profitable on a monthly basis, with annual revenues exceeding operating costs for the first time in FY20. Net assets rose 12% to £141.5m, with the direct investment portfolio stalled at £87.5m reflecting the impact of COVID-19 fair value adjustments and a £15.7m net investment. The group remains well-placed for a downturn with £30m of unrestricted balance sheet cash and £320m of group cash. Post period end the group exited The Native Antigen Company, with £5.2m in cash (8.4x return, 65% IRR) expected. Despite the group’s progress, Mercia’s shares continue to trade at a material discount to NAV (0.60x), even before considering the embedded value of the third-party fund management business (> 4.5p at 3% of AUM).
Companies: Mercia Asset Management Plc
Activity was limited by housebuilding shutdown in H1 as a result of COVID. Sigma remained profitable and, with a strong balance sheet, has weathered the storm. With yesterday’s launch of the £1bn EQT London fund, a material step change is expected for the coming financial year. We reinstate forecasts; updating for EQT and revised expectations post-COVID. We revisit our valuation: a “sum of the parts” approach, assuming no additional AuM, implies an intrinsic value of 200p/share.
Trident Royalties Plc (AIM: TRR) has, this morning, announced the acquisition of a 1.5% Net Smelter Royalty (NSR) over the resourcestage Lake Rebecca Gold Project located in the highly prospective Eastern Goldfields province in Western Australia. The royalty package is being acquired from a private seller for a total consideration of A$8.0 million (c. US$5.63 million), comprising of A$7.0 million in cash and A$1.0 million in new ordinary shares in Trident. The acquisition is Trident’s fifth overall and its third gold deal. As per strategic guidance the company is moving fast assembling a diversified portfolio with a paying cashflow stream from iron ore and copper production and several strategic gold royalties with the potential for near term revenues. The market is paying attention with TRR shares up 49.8% since its IPO on AIM in June this year. There is clearly more to come with c. US$7.5 million of uncommitted cash as well as the potential for debt funding and the ability to use equity as acquisition consideration. The Lake Rebecca Gold Project operated and wholly owned by Apollo Consolidated (ASX: AOP), is located 150km ENE of Kalgoorlie in the Eastern Goldfields Province of the Yilgarn Craton. The Project, envisaged as a simple open pit operation, is close to existing gold infrastructure namely Saracen Mineral Holdings Limited’s (ASX: SAR) Carosue Dam Operation whose processing plant is in the process of being upgraded to increase throughput to 3.2 Mtpa.
Companies: Trident Royalties Plc
Top decile total returns continue.
Financial results. The March 2020 NAV increased by 3% to 285p, continuing the company's strong NAV record since flotation in 2016 (compound growth rate of 16% or total return CAGR of 18%). Adjusted PBT rose by 10% to £2.41m, benefiting from last August's purchase of Concorde Park in Maidenhead, partly offset by higher irrecoverable service charge costs. The final dividend of 2p gives a total of 5.3p, 16% lower than 2018/19, reflecting the Board's decision to maintain liquidity.
Investment Portfolio. 99% of the £140m portfolio is invested in regional offices, with more than 50% by income and value in business parks close to Milton Keynes, Bristol and Maidenhead most notably. We believe that high quality, well located business parks are likely to outperform in terms of rental and capital values during the COVID pandemic as tenants focus on the combination of easier transport access and the well-being of their employees.
Robust rent collection. The company has collected almost 90% of its rent roll in respect of H1/20-21, 91% in Q1 and 87% in Q2. This positive data reflects the quality of both its portfolio and its diverse tenant base. The portfolio has been individually selected, based on asset location and letting prospects, and the company's strategy is to minimise voids by letting at economic rents with minimal tenant incentives.
Forecasts. H1/20-21 has been positive in terms of rent collection but we are withholding our PBT and DPS forecasts for now. Further positive rent collection following next Tuesday's Rent Quarter day will provide additional confidence for the current year. The statement refers to the target of reducing gearing by selling assets where significant value has been added – sales at close to Savills latest valuation will provide confidence in the robustness of the NAV.
Share Valuation. The shares are trading on a 48% discount to NAV yielding 3.6%. Regional REIT and Palace Capital are peer companies which focus primarily on regional offices and both have reported NAV falls in their most recent results, yet trade on lower NAV discounts (but with higher yields and greater liquidity). Circle shares look undervalued, trading just below their IPO price despite a near doubling of NAV since early 2016.
Companies: Circle Property Plc