This morning the LSEG released its numbers for H120. The bottom line was above expectations driven by higher income (treasury income especially) offsetting higher-than-expected expenses. Most importantly, the company has « commenced exploratory discussions which may result in a sale of MTS or potentially Borsa Italiana ». We had expected this to happen as covered in Latest of late June (« Refinitiv or Italy »).
Companies: London Stock Exchange Group plc
The London Stock Exchange Group (LSEG) released this morning its FY2019 numbers. Revenues and expenses were roughly in line with expectations (slightly lower than our own forecasts). The key anticipation was to discover more about the Refinitiv deal. Management did not elaborate other than “regulatory approvals processes ongoing and on track for completion in H2 2020”. It did not comment either during the conference call.
The London Stock Exchange Group (LSEG) is down about 6% this morning as the Hong Kong Exchange and Clearing (HKEX) eventually simply dropped its offer on the UK market venue. While the odds in the last few days was for a rather higher price (with a higher amount of cash), the dropping the deal is not so surprising as it would have been scrapped either by the majority of LSE’s shareholders (probably) or by the regulators involved in the potential deal.
HKSE made a £32bn takeover bid for the London Stock Exchange yesterday.
We believe the probability of this deal succeeding is close to zero. However, this should feed speculation regarding other giant market venues (ICE or CME, for instance) bidding on the UK market venue. It will support LSEG’s share price in the short term. In any case, we remain positive on the stock (even on a standalone basis).
LSEG released this morning its numbers for Q2 19. But, most importantly, it confirmed its ambitions to acquire Refinitiv in an all-share transaction for a total enterprise value of c.$27bn. According to management, the deal will be 30% earnings accretive in the first year after completion (expected in H2 20).
We have been buying (add at worst) LSEG for more than four years. We will adjust our numbers and maintain our Buy recommendation on the company.
The LSEG is in talks with Blackstone and Thomson Reuters about a possible acquisition of financial data analytics provider Refinitiv. LSEG would acquire the company for a $27bn enterprise value. The deal would mark a strong push into the data business (currently branded Information Services within LSEG) and make the company less dependent on volatile capital markets (trading and clearing). Its share price is up almost 15%.
As part of Edison’s accessing the global capital markets interview series, Rachel Carroll, President and Managing Partner of Edison Inc., asks Chris Mayo, Head of Primary Markets (Americas) for the London Stock Exchange, for his views on the health of the UK IPO market post the EU referendum, and how UK corporates can most effectively access global pools of capital via a London listing, with a particular focus on the United States.
According to the FT, Euroclear is exploring some options to allow its shareholders to sell their shares in the company.
As we have been repeatedly saying, it is a natural prey for the LSEG which currently lacks solid collateral management expertise.
The LSEG announced this morning its numbers for FY18.
In terms of P&L, no major surprises as both total income and expenses were bang in line with expenses. Hence, adjusted operating profit was in line with expectations.
Management dropped its 2019 EBITDA guidance (55%) at a time when consensus expectations (Bloomberg) are at 52% (vs. 53% for our expectations). It expects higher total growth in expenses than was initially thought (4%) due to ongoing investments. That mainly has an impact on depreciation (+25% in 2019 adjusted for IFRS 16).
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The London Stock Exchnage Group (LSEG) released some numbers (trading statement) this morning. Total revenue at £464m is 2.5% below expectations but, adjusted for the new accounting standard IFRS 15, this is line with expectations (and 4% below ours).
The LSEG also announced it is purchasing another 15% of LCH Group for £384m, funded with cash and existing debt facilities. This will be accretive to earnings following completion and it takes LSEG’s ownership in LCH to 80%.
Regarding Brexit, no major information was given either in the statement or during the conference call. Management is discussing with both clearing members and regulators and no IRS clearing agreement for the Paris clearing house (LCH clearnet) has been requested to date. No notice of termination has been sent either to LCH’s EU members.
The London Stock Exchange Group released this morning its numbers for H1 18.
Total revenues at €953m are in line with expectations (1% below our expectations) with all operating divisions’ revenues roughly in line with expectations.
Total expenses were, however, lower than expected at €471m, 2% below expectations and 3.5% below ours.
Hence, EBITDA at €544m and operating profit at €480m were 4.5% higher than expected (and 9% higher due to net treasury income €20m higher than our own forecasts).
The London Stock Exchange has been down 2% in the last two days (from record highs). It had been until now resisting markets’ volatility year-to-date being still up 18%.
Ahead of the H1 results to be published on Thursday, it might have been penalised by sectoral rotation (from growth to value stocks) but probably and more importantly by fears over possible signs of disruption in the strategic clearing market which has been dominated by the LSEG for some years now.
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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
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
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
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
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.
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.
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.
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.
John Laing Group (JLG) has announced the sale of its Australian wind farm assets for A$285m (£157m), a valuation described as a ‘small uplift’ to book value. This news is significant for two reasons: 1) it provides some reassurance that the book value of JLG’s renewable assets is now relatively conservative; and 2) accounting for about a third of its renewable portfolio, the disposal represents material progress on JLG’s strategy to exit this market. We make no change to our numbers ahead of the company’s Q3 trading statement expected next week.
Companies: John Laing Group Plc
NextEnergy Solar Fund has low operating costs, low finance costs and has consistently delivered generation outperformance. We estimate that it can sustain its current level of dividend with an electricity price well below today’s price. The shares show the lowest NAV premium of all the UK renewable yieldcos and the highest yield.
Companies: Nextenergy Solar Fund
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