Numis expects to report H120 revenues c 10% higher than in H119 with revenue from investment banking slightly down and equities ahead on the back of increased market volatility. Given the impact of the pandemic we have provided indicative scenarios rather than a point estimate for FY20. Numis is strongly capitalised and has net cash of over £84m. Looking beyond the current dislocation, it is well positioned to serve its corporate client base in a period in which the need for fresh equity and a revival in corporate transactions could drive a sharp recovery in activity.
Numis’s first half saw significant changes in market background including as it did uncertainty ahead of the pre-Brexit general election, a brief revival of corporate activity subsequently and then the escalating global impact of COVID-19. For the Investment Banking business this restricted the opportunity to complete deals and revenue was just below the H119 level. Transactions included fund-raisings for Bovis Homes, Future, Hyve and International Public Partnerships together with an advisory role to Unite in a £1.4bn acquisition; there was also an unnamed private fintech transaction. The Equities business was markedly stronger benefiting from a postelection and volatility-driven increase in trading activity. The trading book also performed well and was not held back by the loss on the Kier rights that affected H119. Overall, as noted above, H120 revenue is expected to be c 10% ahead of H119.
The rapid evolution of the pandemic and government responses suggest that a point estimate for FY20 is not appropriate and overleaf we set out illustrative scenarios for FY20 revenues, profits and earnings per share for reference. Drivers to consider for investment banking include when and how rapidly there will be a revival in corporate activity and the degree to which there will be new equity issuance to support balance sheets. On the equities side of the business, trading volumes remain at a high level but there could be a quiet period following elevated volatility.
The shares are currently trading on a price to book ratio of c 1.6x compared to a 10-year average of 1.9x. The return on equity is likely to be relatively depressed this year (our scenarios range from 5% to 14%) and a return to the longer-term average of 18% would warrant a higher book multiple.