Financial Grime 8 October 2018

Oct 08, 2018 / News

Aston Martin and History 

  • Week end reading reminded me very much of the Aston Martin IPO.  In 1890 there was a jolly good market rally going on and the enterprising Mr Guinness decided to IPO his brewery.  Barings promoted the issue and the ever sensible Economis reported at the time that the valuation of £8.5m for profits which had averaged over the last 10 years £380k represented a multiple of 22.4X which was deemed to be rather representative of a “mania”.  The Economist’s comments were ignored and the issue was 30X oversubscribed.
  • Same backdrop as last time Aston Martin was IPO’s at 44X last years profits.  Back in 1890 the inflation rate was 0.2% and interest rates were 2.5%, so not a similar backdrop to now. The Guinness IPO preceeded the market panic of 1893 which was set off by the failure of the Argentinian wheat crop in 1890 resulting in a coup in Buenos Aires where the bank that had promoted the Guinness IPO had been Argentinian investment. 
  • This time its different With Aston Martin the issue was promoted by 11 banks rather than one. Perhaps that’s because subscribers in the Guinness IPO resorted to tying their subscription forms to rocks and hurling them through the unfortunate Mr Barings windows as the frenzied application process drew to a close. 
  • Other news - Schroders confirms its in talks to set up a joint venture with Lloyds to merge its £13bn wealth management arm into the JV.  Perhaps Cazenove’s name will return.


City Of London Investment Group – Q1 update

Share Price 396p

Mkt Cap £106m

  • Update AUM declined by £0.1m over the 3 months to September consisting of a modest net inflow and market decline. Emerging market and frontier market performance was weak. Q1 PBT was £2.2m against £2.5m last year
  • Estimates PBT for the year to June 2019 is forecast to increase 6% to £13.7m. Q1 last year accounted for 20% of the full year profit.  The lacklustre Q1 means its done 16% of the full year in Q1.
  • Valuation PER 10X, yield 7.2% on existing forecxasts which look aggressive. EV/AUM 2.2%
  • Conclusion  Lacklustre performance is perhaps unsurprising given the sector the company inhabits. With the founder CEO standing down next year this increasingly looks like a take out candidate where 2.2% of AUM for funds yielding 77bps is good value. In the meantime the shares will be supported by the dividend yield

Impax Asset Management – Q4 update 

Share Price 258p

Mkt Cap £336m

  • Update AUM up 12% over the quarter to £12.5m driven by net flows of 2% and 4% market performance. 
  • Estimates Consensus anticipates 10% PBT improvement to September 2019. With a £400m mandate schedulded to come under management in the quarter ahead this looks very compfortable.
  • Valuation PER 17.9X yield 1.9%.  EV/AUM 2.7%
  • Conclusion  These shares are expensive. I recall that environmental manadates proved to be cyclical last time round where demand for environmental manadates declines sharply in a bear market, and expands rapidly in a bull market.  With the shares up 600% over the last 5 years this must ba time to take money off the table.

PCF Group – Acquisition 

Share Price 39p

Mkt Cap £83m

  • Acquisition £5.6m acquisition of a media and broadcast industry leasing and funding business called Azule. Azule generated revenue of £3.1m and PBT of £0.8m from net assets of £17.9m last year. So 7X PBT looks a reasonable price particularly in view of the funding synergies that PCF bank is likely to achieve.
  • Estimates Forecasts anticipate £7.9m PBT for the year to Sept 19. This could add say £1m which is 13%.
  • Valuation On existing forecasts the rOE is anticipated to be 13.3% and the shares trade at 1.7X book value. PER is 13 and small yield of 0.1% ahead of earnings enhancement.
  • Conclusion This looks like a high quality divdersification with strong synergy and the management are locked in for 2 years post completion.  And the shares are good value.