Strong H1 results prompt 24% upgrades; attractive model and underlying drivers
JIM has announced outstanding H1 results this morning, showing that the positive drivers highlighted earlier in the year, and which led to previous upgrades, have continued unabated. PBT up 50% YoY reflects average daily volumes which have moved ahead sharply and exceed expectations, coupled with a significant margin uplift. JIM provides a well-designed low-cost trading offering coupled with an outsourced settlements and administration operation mainly for stockbrokers, wealth managers including IHT and pension schemes, and fund managers. Strong volumes are a big driver for these impressive results, but these also reflect the efficiency of JIM's model as trade volumes on a well-judged cost-base flow convert into profits. Our FY2020 forecasts are upgraded to reflect the business momentum without, however, assuming that trade volumes continue at the same pace we have seen in the past four months in particular. FY2021 upgrades again do not assume recent trading volume levels, but should benefit from the continuing success of JIM's “Model B” outsourcing activity for London Stock Exchange member firms, which has continued to win new clients and has clear attractions from a cost perspective for JIM's clients. With above-expectation growth, our fair value assessment is adjusted to 685p (550p) in line with today's upgrades.
Companies: Jarvis Securities plc
Jarvis' announcement this morning that at 11p, the overall DPS for Q2 is being raised 69% YoY (Q2-2018A: 6.5p) follows on from last week's double-digit earnings upgrades which were the result of strong trading so far in the first half of 2020. Strong volumes fuelled our upgrades then, and this morning's RNS again references these powerful drivers for the business in the current environment. This remains unpredictable, but market activity is a positive for Jarvis in whichever direction.
Oriole today announces that it has expanded its proposed drilling campaign to 2,000m at the Bakassi zone at Bibemi in Cameroon. A further 3 holes, for a total of 17 holes, are planned to test a mineralised stacked vein system which was identified during an exploration programme at the end of 2019, beneath high-grade surface samples (up to 36g/t gold).
Companies: Jarvis Securities Plc
Heading for a strong first half; double digit upgrades today
JIM's announcement this morning suggests that the strong momentum they reported six weeks ago is continuing. Their business brings together an efficient low-cost trading offering with an outsourced settlements and administration operation mainly for stockbrokers and wealth managers. With careful and proactive actions to strengthen the business over the last couple of years, the benefits of increased trading volumes are relatively apt to fall through to the bottom line. Evidently volumes have been good, hence our c.10% PBTA upgrades today; however based on today's update, we believe we still retain some conservatism around these upgrades, as the business is clearly performing very strongly. In respect of the FY2021E upgrades, we see a larger platform for the group next year on the back of this year's positive developments, and also further potential with the “Model B” outsourcing activity, which won new clients earlier in the year and is clearly relevant in a cost-conscious environment for JIM's client-base. The overall backdrop clearly remains highly volatile, but JIM is a gainer not loser by market activity, whatever the direction. Yielding 6.5%, the shares clearly have further to go, with our fair value assessment comfortably above the 500p level.
Companies: CGNR VAL JIM GTC ITM THR ENET AST INL LVCG
A month on from JIM's last update to the market, this morning's RNS fills us in on developments post-Covid-19, highlighting (1) robust implementation of disaster recovery plans, with safe working taking place for the most part off-site, (2) the post-election increase in trade volumes continuing in recent weeks on the back of Covid-19-inspired volatility, and (3) interim dividend to be paid, as previously announced, around June 11th.
In some potentially game-changing news released today by Cadence – DEV Mineração S.A. (“DEV”), the owner of the Amapá iron ore project in Brazil has been granted permission to commence iron ore exports from stockpiles at the ports (estimated at 1.4Mt grading 62%Fe). Permission was granted by Brazil's Commercial Court of São Paulo as a result of a petition filed by DEV which was supported by a judicial trustee and creditors committee.
Companies: Cadence Minerals PLC (KDNC:LON)Jarvis Securities plc (JIM:LON)
Companies: CPT SRB UFO FOX MOS NUOG CBOX JIM GCM NSCI
Record-breaking year; client wins; moving business ahead
Strong results from JIM today show double digit PBT / EPS growth YoY while also delivering earnings appreciably ahead of our expectations. The company operates a balanced business combining an effective low-cost trading model with a settlements and administration operation outsourcing these activities for a client base including pension funds and wealth managers. Proactive actions previously taken by the company further extended the previous year's gains over FY2019A (full year effects) and looking forward, the company is also a potential beneficiary of positive trading volumes. JIM's so-called “Model B” outsourcing division has continued to win clients, pre and post the year end, while its low-cost trading model remains highly relevant. In an uncertain environment, JIM is well supported by a strong balance sheet and a well-developed operating model. We are modestly lifting our forecasts for the present, given these uncertainties, but see the shares, which also offer a 6%-plus dividend yield, as undervalued against our fair value assessments.
Jarvis Securities (JIM) – Corporate – 15p special dividend reflects long-term cash-generative characteristics of business
This morning’s H1-19A results show that encouraging H2 trends within the business, mainly driven by the company’s own actions in sharpening its focus and managing regulatory transitions in ’18, continued in the first half of the current year. Double digit increases in sales, profits and EPS are matched by positive developments within the cashflow. Both JIM’s low-cost trading model and its so-called Model “B” outsourcing activity retain significant attractions, and while the general environment is unquestionably uncertain, including that of the equity markets, this latest set of results certainly suggests that the company is well able to manage current conditions. Notably new fee tariffs introduced last year have delivered benefits; while we view the yield of 5.8% as attractive. JIM operates a balanced business combining an effective low-cost trading model with a settlements and administration operation outsourcing these activities for a client base including pension funds and wealth managers. Conservatively leaving our FY-19A forecasts unchanged, we anticipate further progress after a good H1.
Caspian Sunrise (CASP) – Corporate – Operational Update | UK Oil & Gas (UKOG) – Corporate – Transfer of Operatorship of Holmwood | Jarvis Securities (JIM) – Corporate – FY18A results: small beat to forecast, cost increases offset, ‘19E optimism |
Companies: CASP UKOG JIM
JIM operates a successful low-cost trading model alongside an outsourced settlements and administration business for pension funds, wealth managers and the like. The company’s previous update in July ’18 was cautious given extra costs incurred as a result of the implementation of MIFIDII. This morning’s FY18A results show that the company has succeeded in offsetting the cost increases by higher revenues, a good achievement; and while profits are marginally down YoY, they are slightly better than we were expecting. The attractions remain strong of JIM’s low-cost trading model as well as its Model “B” outsourcing activity, and of course JIM’s business is not sensitive to the direction of equity markets, as against volumes – and generally sensitive to neither in relation to Model “B”. The company sees full year benefits to top and bottom line arising from new services and fee tariffs introduced last year (only H2 benefits so far); however, we are retaining our FY2019E forecasts unchanged for the present. At current levels, the stock is yielding no less than 5.2%. With FY benefits coming through, we see further progress, while noting that the business is continuing to expand and grow from a larger, more extensive base.
UK Oil & Gas Investments (UKOG) – Corporate – Initial Portland Sandstone Production Rate | Gama Aviation (GMAA) – Corporate - H1 update; FY expectations unchanged, strategic plan on track | Frontera Resources (FRR) – Corporate – T-39 initial production rate of 529 b/d | Jarvis Securities (JIM) – Corporate – Increased costs held back H1-18 outcome but positive prospects for future growth | Scholium (SCHO) – Corporate – FY2018 results |
Companies: UKOG GMAA JIM SCHO
This morning’s results reported by JIM reflect excellent performance in 2018, with PBT ahead by 22% YoY and DPS up by even more at +34%. Strong trading volumes came together with expansion on both sides of the business accompanied by a healthy rise in cash under administration. The results are all the more impressive given the undertow of new regulations which has taken up management time and imposed new costs, with this process starting in 2017. Looking forward we believe the fundamentals of the business remain strong, with meaningful attractions attaching equally to JIM’s low-cost trading model and to its Model “B” settlements and administration offering for pension funds and the like. Last but not least, there is the future promise of increased interest rates. Our forecasts are modestly shaved this morning to allow for a modicum of extra cost highlighted by JIM in relation to MIFID2. With strong commitment to the dividend, this is marginally raised from our prior forecast to 23.5p (23.0p), a 70%-plus distribution. The company highlights this morning that rapid growth has matured to a steadying of the business as a larger and more profitable entity than formerly. We believe the business offers significant future positives notwithstanding the effects of regulation and now include a new forecast for FY2019E, which shows the business making further progress.
Saffron Energy—Schedule One update. Raising £2.5m, expected Mkt Cap £7.7m. Admission due 24 Feb. Italian Oil & Gas Play
Guinness Oil & Gas Exploration—Publication of prospectus. Seeking to raise £50m and invest in 15 exploration companies at launch, with plans to grow the portfolio to 30 positions during its lifetime. Issue closing 23 Feb.
Arix Bioscience — Intention to float on the main market from the global healthcare and life science Company supporting medical innovation. Raised £52m in Feb 16 with investors including Woodford Investment Management
Companies: ZYT DMTR VRS MWE SIM CHAR JIM SOLO BIDS LSAI
So what is the profile of a typical AIM quoted company? The market’s detractors may argue that London’s junior market is peppered with cash consuming companies that are not sufficiently advanced in their route to profitability nor corporate governance regimes to justify their listing. Supporters of the London Stock Exchange’s growth market would say that the Alternative Investment Market is the world’s most successful market for growing companies rewarding investors prepared to brave the risks of earlier stage funding, and driving innovation and job creation. Neither view suggests that AIM would be a fertile hunting ground for income generating stocks. However a glance at the FTSE AIM All Share constituents (Source: Fidessa) suggests that over 250 of its members or circa a quarter of the market’s members pay dividends.
Companies: BVXP BOTB ITQ SHOE CGS DX/ HSP JIL IBEX PRP CAML GTC JIM CCAP ENTU FXI NAH ASY HGM PEN PEG AVG NXR
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Cenkos’s first half results demonstrated the benefits of its flexible operating model and strength of its client relationships. While challenges related to COVID-19 are set to continue, Cenkos’s focus is on growth companies and its fund-raising year-to-date has had a greater emphasis on corporates financing M&A and growth opportunities rather than for defensive purposes. This should prove more sustainable although, as always, the timing of transactions in the encouraging pipeline reported remains uncertain.
Companies: Cenkos Securities plc
Following on quickly from its impressive full year results, these interim results confirm that our confidence for growth in the Program Management business was not misplaced.Contracted Premium increased 95% YoY (and 12% ahead of December 2019) to $925m –a stone's throw away from the $1bn 2020 guidance set in 2018. At the same time, Gross Written Premium (GWP) grew 42.6% to £247.2m, resulting in Economic EBITDA turning positive, at £0.8m compared to a loss of £0.3m in 1H19
Companies: Randall & Quilter Investment Holdings Ltd.
Record’s Q221 trading update confirmed that its new $8bn dynamic hedging mandate has started and that, prior to this, assets under management equivalent (AUME) expanded by 4% in the quarter. The group continues to work on developing new products and is deploying technology to enhance its ability to deliver these and existing products cost effectively.
Companies: Record plc
Avation is a lessor of 46 commercial aircraft to a diversified airline client base. This morning, the group has released results for the 12-months to 30 June 2020, which illustrate the challenges faced by its customer base as a result of Covid-19, as well as the corrective actions taken by the Board that have resulted in profitability being maintained in the year as a whole. Loan repayment deferrals of c.$24.4m were obtained in the period, in comparison to $13.1m short-term rent deferrals being granted to airline customers and thus emphasising management's focus on liquidity during an unprecedented period for global airlines. Avation again reports that it is currently reviewing alternatives in relation to the 6.5% senior notes due in May 2021. Whilst at this point our forecasts remain under review, and near term challenges remain across the industry, we believe that demand for aircraft from lessors such as Avation will increase in time as a result of airlines being even more reliant upon aircraft leasing firms due to the retirement of older aircraft during 2020 in combination with much weaker balance sheets that are unable to support direct aircraft purchases.
Companies: Avation PLC
Primary Health Properties (LON:PHP) is a real estate investment trust (REIT) that holds a portfolio of 510 primary health facilities in the UK (92% of the portfolio by value) and Ireland (8%). The business model is to manage the properties for rental income and to grow the portfolio over time. The
Companies: PHP PP51 PHPRF
Cenkos Securities plc has terminated coverage of Record Plc. Our previous recommendation (BUY) and forecasts can no longer be relied upon.
Please contact Cenkos for further information.
What’s new: Today’s trading update reveals 17% rise in assets under management (AuM), double digit revenue growth, and an increasing operating margin as the business scales. The outlook is positive. Highlights are:
12.6% rise in 1H Group Revenues to £11.0m (1H last year: £9.7m);
21.9% rise in 1H adj operating profit to £5.0m (1H last year: £4.1m);
17.4% rise over 6 months in AUM to £7.8bn on 30 September 2020,
n.b. From 31 March 2020 the WMA balanced index rose 11.6% to 4510;
- Market movements added 12.5% to AUM (i.e. Tatton outperformed WMA);
- 1H net inflows of £328.1bn were 4.9% of opening AUM (i.e. c 10% annualised net inflows);
3.0% rise in Paradigm Mortgage Services member firms to 1,591
2.5% rise in Paradigm Consulting member firms
Interims will be announced on Wednesday, 18 November 2020
Companies: Tatton Asset Management Plc
As expected following the US banks’ releases, Barclays’ third quarter results saw a sharp reduction in provisions build-up while the emergence of delinquencies has been delayed by the State’s supporting measures. Management continues to expect a reduction in the cost of risk next year. It remains to be seen if this guidance is capable of withstanding new lockdowns or a no-deal Brexit.
Companies: Barclays PLC
Tatton has reported an in-line H1 financial performance: revenue totalled £11.0m (vs N+1Se £10.9m) and £5.0m adj. EBIT (50% N+1S FY21e). AuM grew by 3.4% to £7.8bn as net inflows continued throughout H1 (+£328m) – a positive performance given the backdrop. Paradigm, particularly in Mortgages, has been resilient post-lockdown. Having delivered 50% of our earnings forecast for FY21e, there is potential for upside. However, we leave our forecasts unchanged and a margin for safety as we remain alive to potential external risks/volatility.
ANGLE plc (AGL.L): Acceptance of FDA submission | Feedback plc (FDBK.L*): Partnership agreement | Open Orphan (ORPH.L): Human Challenge Study Model contract with UK Government
Companies: AGL FDBK ORPH
The interims confirmed that Covid-19 was minimally disruptive operationally in H1 20 and, ironically, may have improved both of R&Q’s divisions’ mediumterm trading outlooks. As the pandemic and other industry events have generated significant losses for insurers, they have created the current ‘hardening’ market driving demand for Legacy and Program Management.
Whilst there are some bright spots, such as payments companies, which are beneficiaries of the shift to online shopping, fears about the potential impact of COVID-19 have hit valuations across much of the financial sector. The fall in Polar Capital Global Financials Trust’s (PCFT’s) NAV reflects this situation.
Companies: Polar Capital Global Fincls Trust
There was an eclectic mix of property companies to feature in the top price movers for September. Top of the tree was private rented sector and residential development specialist Sigma Capital Group, with a 34.2% rise. The group launched a £1bn joint venture with EQT Real Estate, the real estate platform of global investment firm EQT, to deliver 3,000 private rental homes in Greater London. Micro-cap investor Panther Securities also hit double-digit gains, while Macau Property Opportunities saw an uplift in its share price after announcing debt refinancing and a disposal. CLS Holdings, the investor in offices in Germany, France and the UK, continued to see a recovery in its share price – which has risen 15.1% in the last three months. Off the back of solid results, Berlin residential landlord Phoenix Spree Deutschland saw its share price gain 7.2%. Schroder REIT’s share price rose 6.6% in the month as it embarked on a share buyback programme, while Irish commercial property investor Yew Grove REIT also saw positive shareholder reaction to amending its investment strategy to increase its target loan to value ratio to 40%.
Companies: SUPR DIGS CRC PSDL ASEI TPON RLE UKCM BREI BCPT RGL SIR SLI TOWN CAL
Life sciences is one of Mercia’s areas of focus and investment expertise. Seven of Mercia’s top 20 holdings at 31 March 2020 were in life sciences, valued at £29m in aggregate or 33% of total portfolio value (all of which had originated through Mercia’s third-party managed funds), with another c 40 earlier-stage life sciences investments across its third-party managed funds. COVID-19 has accelerated the opportunity for a new generation of novel and recombinant vaccines. This explosion of potential new treatments will require new diagnostics and bio-manufacturing support to scale supply once they are approved. These are areas where Mercia is already invested.
Companies: Mercia Asset Management PLC
The most pleasing aspect of Tatton’s trading update for the six months ending 30 Sep 2020 (H1 2021) was how robust its fundamental offering to clients (financial advisers) has proven to be in highly uncertain market conditions. It continued to attract strong net inflows into its asset management business while also growing its base of IFA consulting and mortgage services clients. The prospect of beating our previous FY21 forecasts looks promising. Longerterm growth prospects also look strong. We do, however, remain wary of the potential impact of further large market dips. For now, we maintain our fundamental valuation of 300p per share but see room for significant upside on that mark if Tatton continues to deliver.