Numis has continued to build its franchise against a difficult market background, with net additions to its corporate client roster during FY19 and market share gains within its equities business. Lack of corporate activity meant the return on equity was reduced to 7% last year but, on a medium-term view, there are good prospects for a substantial improvement, with a return to the five-year average of 18% not an unreasonable aspiration.
Revenues were down 18% on the prior year, in line with the indication given in the year-end trading update. Costs were controlled, with staff costs down 14% and total administrative costs 8% lower. Even so, PBT was down 61% to £12.4m, reflecting operational gearing and the impact of valuation write-downs in the investment portfolio (£2.2m), the main variation from our estimate. Diluted EPS were 65% lower at 8.1p and the full year dividend was maintained at 12p. The balance sheet remains strong with no debt and cash of £84.2m (FY18: £111.7m). Numis continued to add to its corporate client portfolio (a net increase of seven to 217), with new additions having a higher average market cap than departures. It notes that it has made market share gains in equities and that research payments have been resilient against a tough background.
While the background remains difficult with political uncertainty damping corporate activity, the first two months of the fiscal year have seen an encouraging start with revenues across the business ahead of the same period last year. There have been fund-raisings for Bovis Homes and Future, an advisory mandate on a £1.5bn M&A transaction and a significant (unnamed) private transaction. Numis remains a prime potential beneficiary of greater political certainty in the UK and a revival of confidence among its corporate and institutional client base.
The prospective P/E multiple of over 17x and implied market ROE assumption of over 15% (see page 9) appear high at first sight, but arguably only discount part of the recovery and longer-term growth potential for Numis.