Financial Grime 9 October 2018

Oct 09, 2018 / News


  • Cenkos CEO stands down.  Nothing going on here.
  • Impax enters into a referral relationship with a subsidiary of its 24% shareholder, BNP.

STM Group – Acquisition 

Share Price 61p

Mkt Cap £36m

  • Acquisition  STM use existing balance sheet resources to finance the £0.4m acquisition of Carey Administration Holdings. The deal expands STMs offering into the auto enrolment market. Carey are one of the top 20 providers of AE workplace pension schemes (65,000 members, £1.5m revenue). Carey’s SIPP business has 4,000+ members and generates £1.8m of revenues. The vendor owns 80% of the AE business and 70% of the SIPPs administration business. Remaining minority stakes are held by incumbent CEO who has agreed an options package that will enable STM to acquire 100% within 3 years
  • Estimates  Our estimates remain unchanged at this time but we note that 2019E revenue growth of 5% ought to move up as the acquisition integration progresses
  • Valuation STM will pay c.16% (yes- only 16%!) of revenues for the combined SIPP administration business and AE workplace pension business, a price that is many magnitudes lower than the multiples seen in the wider SIPP market. The deal thus recognises almost immediate value even before considering the opportunities it brings for the organic side of STMs growth strategy. A 2019E PER of 9x with a 4% yield represents noteworthy value.
  • Conclusion STM have placed themselves as a beneficiary of consolidation that is likely to develop in the UK AE market as smaller master trusts refrain from authorization next year and thus will need a home for their books of business. The deal will deliver £0.5m of savings post-integration. The move also supports STM’s stated intention to be an increasingly UK focussed business with a more diversified product range.


Premier Asset Management – Trading Update 

Share Price 255p

Mkt Cap £270m

  • Update Net inflows of 1.8% were mitigated by dull markets so AUM grew 1.4% over the period to £6.9bn bringing the landmark 20th quarter of successive net inflows.
  • Estimates Consensus looks for 28% PBT growth to £19m for the year to September 2018 which compares to 13% AUM growth achieved which is 15p EPS from which a 10p dividend is expected. Going forward 19% EPS growth is anticipated in the year to Sept 2019
  • Valuation EV/AUM is 3.6%. PER 14.2X Sept 19 EPS and 4.7% yield
  • Conclusion  The shares have come back from the 310p peak and now look reasonable value.  Liontrust and Miton remain cheaper however.


Lighthouse – New affinity contract 

Share Price 33p

Mkt Cap £44m

  • Contract The new contract follows the merger of the National Education Union and the Association of Teachers and Lecturers bring a further 336k members within Lighthouse’s preferred provider relationship. Lighthouse now is the dominant provider of financial advice to the education and healthcare sector.
  • Estimates  We make no change to our estimates
  • Valuation PER 18.3X yield 1.5% Dec 18. This compares to Harwood trading at 18X Oct 19 and AFH trading at 14X Oct 19. Our target price of 40p remains
  • Conclusion The unique market position with its dominant preferred provider status to affinity groups in the UK merits a premium rating as the value of the financial planning companies is in their distribution capability. Meanwhile the company has an increasingly strong balance sheet providing scope to make earnings enhancing acquisitions. We are confident our 40p target price will be reached in the near term.