The issue of a substantial number of new shares, even if overwhelmingly to existing shareholders, is often accompanied by a decline in share price as it alters the supply/demand balance. However, the issue of 2 million shares by WHIreland (“WHI”) was immediately followed by a sharp rise in the share price to a 5-year high followed by a modest decline to just below the previous high. We do not know the reason for the moves, but continue to think that the shares are undervalued. Therefore, it seems an appropriate time to update our research and add a forecast to our “sum of parts” valuation.
WHIreland is one of the few remaining stockbrokers / asset managers covering the full range of activities that used to be the norm: discretionary, advisory and execution-only private client portfolios, investment research and dealing for institutions, corporate broking and investment banking, and market-making. It was also (one of) the first stockbrokers to develop a financial planning division in order to provide its client with a holistic offering.
WHI has nearly completed a major transformation process at significant cost, £4m of which has been quantified in the accounts, but much of which, such as doublerunning costs while switching systems, has not. So we have eschewed profit forecasts in this period as they would be meaningless as a guide to the value of the company. 2018/9 will still be affected by last phase of the transformation process, but should be far less so than the previous few years.
Forecasting is always difficult, especially about the future, so we tentatively offer a range of a ‘sensibly but not over-cautious’ £1.5m to a ‘reasonably hopeful but not euphoric’ £1.75m for 2018/9 and £2.25m to £2.75m for 2019/20. Minus £2m to Plus £5m, so as to cover a range of scenarios for AIM and markets in general, would be safer, but not much use. The sensibly cautious end of our ranges imply EPS of 4.36p and 6.5p. These are, of course, comparable to the FRS3 EPS of Rathbones and Brewin rather than their “adjusted earnings” since WHI does not miss out the bad bits. So the PERs are similar.
An earnings-based valuation of 172p (using the mean of Rathbone’s and Brewin’s PERs) is lower than our ‘sum of the parts’ valuation, although above the current price, because WHI has not yet exhausted the costs of the transformation process and the benefits are still in the process of accruing.