Two material updates: fixed fees are being increased, and also the recent treasury refi has underpinned our prior forecast for interest income. Fixed fees are being increased by c.20% which increases recurring income without eroding competitive advantage. It is also introducing formulaic interest to show clients that they will benefit from rising rates. Current year trading is in line. Higher fees drive a 10% earnings upgrade in outer years (FY20e unch). Earnings quality is increasing, but was already strong: an 11x fwd PER underestimates annuitylike recurring income, even more so now interest exposure has been reduced.
Companies: Curtis Banks Group PLC
Interims are in line and unchanged yoy. This masks a resilient performance which has seen organic new scheme additions maintained – a reflection of marketing efforts. Some uncertainty remains for H2, particularly around the key treasury refinancing, which may impact interest income. There is competitive advantage in the holistic fee structure. Long term growth may come at the expense short term returns on interest income. We leave forecasts unchanged and will review again around the year end.
Curtis Banks has raised £25m (gross) new equity to fund two accretive and strategically valuable acquisitions – Talbot & Muir and Dunstan Thomas – diversifying the group’s sources of income. Initial consideration totals £38m – implying a c.6.5x FY20e EV/EBITDA multiple for both - to be funded using placing proceeds and renewed debt facilities. There is an additional c.£15m deferred contingent on profitability. The group will remain net cash positive (FY20e £13m). The acquisitions are expected to be immediately earnings enhancing and 29% accretive in FY21e.
AEX Gold (TSXV:AEV) is intending to admit its shares to AIM alongside a £45m placing. The Company, led by CEO Eldur Ólafsson, has established the largest land package of gold assets in Greenland with a current portfolio of licences covering 3,356 square kilometres, in the two known gold belts in Southern Greenland, the Nanortalik and Tartoq gold belts. Nalunaq is a highgrade gold asset with an updated Inferred Mineral Resource covering 422,770 tonnes at 18.5 grams per tonne of gold, or 250,970 ounces of gold, which covers the area in and around the historical mine. Due July. Current mkt cap C$66.7m.
Companies: SYM CBP GGP UKOG MTPH PGH XLM FEN EQLS DOTD
Curtis Banks has reported in line final results, with growth in fee income – benefiting from an inflation link – and better than expected interest income. Activity levels were strong in Q4 and the headline Mid SIPP product saw momentum during the year. We reduce forecast adj. PBT by 10% in FY20e following a higher than expected cost base in FY19. We lower forecast earnings by 35% in FY21e on reduced interest income (£4m) using current parameters post the base rate cut, assuming no interim change or mitigation.
Interim results demonstrate the virtues of consistent fee-based income, as well as continued implementation of the target operating model. Headline growth in scheme numbers is flat, but there was solid growth in the key Mid SIPP product. The financial performance underpins full year expectations (H1’19 EBITDA 49% of FY19e) which we leave unchanged. At 15x cal’20 PER, we do not believe that the valuation is challenging for a business with strong recurring and uncorrelated income.
Renold plc—a leading international supplier of industrial chains and related power transmission products, announced that it will cancel the listing of the Company from the premium segment and apply for admission on AIM. Expected 06 June 2019.
Alumasc Group plc, the prem ium building products, system s and solutions group, has announced its intention to m ove from the Premium Segment of the main market to AIM. Expected market cap of £33.4m. Expected 25 June 2019
Companies: FOX RBD AGL CBP ADV OPM LTG K3C KAV AA/
Final results are in line: £12.1m adj. PBT matching our forecast, with 17.3p adj. EPS (N+1Se 17.2p). Growth in schemes continued (+2.4% net) with particular strength in Mid-SIPPs; attrition was stable. 130bps operating margin accretion was delivered (FY18 27.1%), with 30% being targeted. A proactive drive to deliver high quality service has prompted detailed review, with no material exposure identified. We make only minor (+/-3%) changes to our earnings forecasts. We see upside on account of resilient earnings and margin accretion potential, not reflected in a 15x FY19e PER
We are introducing our Best Ideas for 2019 and also review the performance of last year’s picks. We suggest ten solidly financed stocks with good business dynamics that ought to be considered for core portfolio holdings and six UK domestically focused stocks that our analysts believe should perform strongly in the event that uncertainties unwind. We also introduce a new style of research from N+1 Singer which presents a Company’s dynamics and metrics in a clear and concise manner and concentrates on the pivotal issues affecting that Company and an investment decision.
Companies: BCA CLIN CLG CBP DNLM EAH STU FCRM FUTR GTLY INS GLE NICL SPR TRI
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In a positive 10-month update Belvoir has detailed trading is ahead of its pre-COVID expectations. Gross profit is up +10% in the Property division and +11% in Financial Services. Overheads are now significantly below the original budget and management has decided to reimburse staff for salary sacrifices earlier in the year and repay the Government in full for COVID furlough monies and grants. Taking all this into account, we have upgraded our FY 2020E EPS by +4%. A further catch-up dividend of 1.3p will be paid alongside the final 2020 dividend and we forecast net debt of £4.5m at December 2020. The resilience of Belvoir’s franchise model has been proved and, in our view, highlights the long-term growth potential when markets return to more normal conditions.
Companies: Belvoir Group PLC
H1 has seen a clearer outlook for portfolio valuations which has allowed Mercia to recoup some of the reduction at the Finals. Cash earnings are better than expected as costs have remained lower for longer. A well-funded portfolio and £25m cash has prompted declaration of a maiden 0.1p interim dividend – a strong signal of confidence. Lower costs and increased asset values have prompted 30-45% upgrades to adj. EBITDA across the horizon. The shares are trading at a 32% discount to NAV, of which 17% is cash. This disregards all value for the asset management platform. A 10x EBITDA multiple ascribed to 3rd party asset management earnings plus NAV points to a c.40p/share intrinsic value, before further value creation.
Companies: Mercia Asset Management PLC
Today's trading update demonstrates Equals producing robust FY20E revenues, as it rebounds steadily from a COVID-19 affected Q2/20. Material progress has been made on rightsizing costs, the benefits of which should be felt in FY21E. While our newly reissued forecasts expect a weaker profit delivery in H2/20E, we expect strong YoY EBITDA growth thereafter, as the group returns to double-digit revenue growth with a rationalised cost base and geared profit growth. Should these forecasts be met, we expect the current c2x EV/Sales multiple to move back towards Jan 20's pre-covid 4x multiple, hence we move back to “Buy”.
Companies: Equals Group Plc
Today's news & views, plus announcements from AZN, LLOY, WEIR, TATE, GFTU, INCE, DELT, SOLG, HYVE
Companies: LLOY SOLG INCE
Record has set itself the goal of generating greater growth and H121 showed some encouraging steps in this direction. The substantial new dynamic hedging mandate in the period was traditional business for the group, but there was also news of a new currency impact fund, which provides diversification, higher fee margins and the potential for significant development. The implementation of new IT systems is underway, and measures to develop and retain staff have been taken.
Companies: Record plc
In this note, we examine three aspects of OCI’s NAV: firstly, why investors can have confidence that it is conservatively calculated, evidenced by i) realisations above carry cost, ii) no incentive to inflate valuations, and iii) a tech-enabled business mix; second, NAV has been robust through COVID-19, a feature we expect to continue, driven by digitally delivering companies, largely defensive sectors and OCI’s large cash balances; third, upside from incorporating the market’s “vaccine” recovery in OCI’s NAV is compounded by underlying structural growth and a unique sourcing model in attractive markets. The 29% discount to NAV is an additional attraction.
Companies: Oakley Capital Investments
Marlowe has released a robust set of interim results, with Adj EBITDA up c16% YoY to £11.5m (c250bp margin expansion to 14.8%). FY21E has been a significant year for Marlowe, including completion of two transformational acquisitions, along with multiple bolt-ons. Run-rate revenues now exceed £225m, and underlying organic growth remains on track. We update our forecasts to reflect recent bolt-ons (FY22E Adj EPS up 1% to 29.2p), and reaffirm our Buy rating.
Companies: Marlowe Plc
Mercia has demonstrated real progress on its three-year strategic plan to achieve operating profitability, expand AUM to £1bn and ‘evergreen’ the balance sheet by end FY22. AUM have increased to £872m, with third-party, fee-earning FUM of £722m. The group delivered an operating profit of £8.0m (H120: £2.1m), an adjusted operating profit (ex-realisations, fair value gains, etc) of £1.1m (H120: £0.6m loss) and H121 EPS of 1.87p (H120: 0.69p). Revenues are sustainable, with 87% recurring, allowing Mercia to initiate a progressive dividend policy, with a maiden interim dividend of 0.1p per share. Despite progress, Mercia’s shares continue to trade at a material 20% discount to NAV (0.80x), before considering the incremental value of the third-party funds business (we estimate at 3% of FUM, or 4.9p).
Today's news & views, plus announcements from LLOY, POG, FRAS, PETS, SPR, WHI, FKE, RLE
Companies: Lloyds Banking Group plc (LLOY:LON)Real Estate Investors plc (RLE:LON)
Henderson Far East Income (HFEL) has experienced a tough period of capital performance as market participants have focused ever more on growth and momentum rather than cash flows and dividends. However, in a year where the majority of investment trusts have needed to dip into reserves to avoid cutting their dividends, HFEL stands out in that it not only delivered year-on-year dividend growth of 2.7% for FY20, it fully funded its dividend from portfolio income and even made a small contribution to reserves to help underpin future dividend growth. Managers Mike Kerley and Sat Duhra remain convinced that market focus will return to value and yield factors, as seen in the quantitative easing era of 2011–13, given the ‘even lower for even longer’ interest rate outlook.
Companies: Henderson Far East Income
Resilience throughout the COVID pandemic has driven positive portfolio gains and further capital investment. The 119p/share NAV does not come as a surprise given the £27.5m equity raise at 120p was only completed a month ago, and will be deployed to target a deep £120m pipeline – now underway. Trading momentum has been sustained in Augmentum's (“AUGM”) portfolio companies which are high growth, disruptive and innovative. There is (much) more value to play for as this continues. For public markets investors, this is a diversified and professionally managed route to access attractive VC assets with structural growth. Should this value be forthcoming, the current premium is only the tip of the iceberg.
Companies: Augmentum Fintech
Litigation Capital Management (LCM) is an alternative asset manager specialising in disputes financing, with its main operations in Australia and the UK. The company provides funding for litigation in exchange for a share of any settlement and has built a strong track record of supporting winning c
Companies: Litigation Capital Management Ltd
An in-line trading update for the year to 31 December 2020 states EBITDA will be at least £3.6m and £2.0 at the PBT level. However, conservative budgeting affects 2021E and 2022E with the company rebasing expectations following year-end re-forecasting exercise, taking into account the prolonged challenging macroeconomic environment. The acquisitive opportunity remains in place.
Companies: STM Group PLC
The 12 November interims showed an impressive 16.0% annualised total asset return. The company’s “last-touch” distribution warehouse portfolio is in a strong spot. Market supply is reducing structurally, and demand is growing in the short and long term. In 2H’21, 17% of leases are being renewed into a strong market. Deployment of recent equity raises is ahead of schedule, set to complete (with gearing) by January 2021. Expertise is paying off in an actively managed portfolio, yet the shares trade barely above NAV and far below the assets’ replacement cost. With FY’22 likely to see assets fully deployed and with rents rising, the earnings growth is set fair, we believe.
Companies: Urban Logistics REIT plc
Gore Street’s recently announced fundraising comes at an opportune moment in our view. The company has recently secured its near-term dividend stream with the acquisition of a strong portfolio of operating assets. The fund raising will allow the company to execute on additional projects further growing the portfolio. Gore Street has already shown that it can acquire assets at good prices and now has the potential to expand the opportunity at some sites through project extension. With a pipeline of 1.3GW of storage projects and a developing market opportunity, Gore Street can use the funding to take it to a new level.
Companies: Gore Street Energy Storage Fund PLC