Numis has provided an encouraging year-end trading update, reporting revenues up 14% for the full year and continued net additions to its corporate client base. This was a strong performance against a mixed market background; so far the signs are encouraging for the new financial year, albeit with the normal caveats about potential market volatility. We have increased our earnings estimates and central valuation.
Both institutional and corporate-related activities contributed to the revenue growth of 14% for the full year and implied growth of 5.6% for the second half against H215 was strong in the circumstances, with the EU referendum acting as a brake on corporate and market activity for part of the period. New co-CEOs Alex Ham and Ross Mitchinson assumed their roles in September and should provide a fresh impetus to the development of the business although, directionally, we expect little change. The continued growth in the corporate client base during FY16 provides a good starting point for FY17.
The UK stock market has shown resilience to the Brexit vote but may well suffer further volatility as terms are negotiated with the EU and other trading partners over coming years. Nevertheless, some near-term concerns proved too cautious and current commentary points to a marked revival in potential equity market flotations and issuance. If markets remain sufficiently stable for this to become a reality then there should be further positive surprises for participants such as Numis. However, on a longer view, it is the continued development of the company’s franchise through further additions to the corporate client list and maintenance and development of institutional client relations that will determine the valuation of the company through market cycles.
We have increased our earnings estimates (see page 4 for details) and our central valuation has increased from 307p to 339p, based on a ROE/COE calculation. In this we assume a sustainable ROE of 20% but reversing the calculation suggests the market is assuming a sustainable return of c 15%. This appears conservative given Numis’s track record and evidence of continued progress in the latest update.