Financial Grim 19 July 2018

Jul 19, 2018 / Financial Grime

  • Afterpay announced a business update overnight in Australia reporting a 171% increase in Q4 sales. The shares rose 24% bringing the market cap to A$2.4bn.  Thinksmart is launching its similar product in the UK and has a market cap of £10m.

 

Pension Consultants –CMA findings  

 

  • Yesterday the CMA proposed a raft of reforms to the pension consulting anf fiduciary management industry. The main findings are:

 

  1. Half of all pension schemes use the same provider for fiduciary management as they do for investment consultancy.

 

  1. Only a third of trustees ask firms to compete through a tender process

 

  1. Insufficient information is provided to trustees on fees and quality of service to enable them to judge if they could do better elsewhere.

 

  • Proposed remedies are:

 

  1. Pension trustees obliged to run a tender for fiduciary manager. Existing mandates must put the role out to tender within 5 years.

 

  1. Clerarer information requirement on fees and performance as well as guidance from the Pension Regulator on how trustees should choose and scrutinise providers

 

  1. Bring the investment consultants and fiduciary managers within the scope of FCA’s remit

 

  • Conclusion  XPS look fine and arguably may benefit from the advice around the re pitching and re informationing while River & Mercantile may see some attrition and extra costs around the repitching of their existing manadates. Equally there will be some large manadates available from the big 3 in the industry. The real winner is likely to be the pay cheques of the pension trustees.

 

WH Ireland – New CEO and FY Results 

Share Price 128p

Mkt Cap £38m

 

  • News  Richard Killingbeck is stepping down on 31 July to be replaced by ex Panmure CEO Phillip Wale.  Results are for a 16 month period but on an annualised basis revenue of £36.4m represented a 7.5% increase. The underlying operating loss was £1.6m while a further £2.5m of exceptionals were incurred bring the reported loss to £4.1m. Net asset value is £12.9m of which £3.7m is intangibles.  Cash is £7.3m. Corporate Broking contributed a profit of £390k (2016 loss 615K) while wealth management lost £3m (2016 £1.3m).  AUM in wealth management totalled £2.5bn of which £1.1bn was discretionary

 

  • Valuation If we value the £1.1bn of discretionary AUM at 3% we get £33m. The balance of the AUM must be worth something and there is close to £9m of tangible net assets of which £7m is cash.  Its not difficult to justify a £50m valuation if we can see a way to making the wealth management business profitable while the corporate broking business is profitable under the leadership of Adam “VR pod jockey” Pollock.

 

  • Conclusion  There is significant value here and a new CEO as a catalyst to get the company the company profitable.  It may need some M&A activity to achieve the scale and quality required in the wealth management business. The next couple of years could create significant value.

 

Jarvis Securities – H1 Results

Share Price 471p

Mkt Cap £52m

 

  • Results Revenue in the 6 months declined 0.3% to £4.8m while PBT was down 11.6%  to 1.68m as costs have increased post Mifid 2. A restructure of fee tariffs has been implemented in order to restore the margins and the company expects margins to return to norm which is a healthy 49%. EPS was 15.4p (2017 17.4p) and the company will continue with the dividend at last years level which was a full year dividend of 23.5p

 

  • Estimates The market forecast looks for flat revenues and flat profits for the year which would require an improvement in profitability in H2 to recover the lost ground in H1. However the step up in costs should not recur.

 

  • Valuation This company produces a ROCE of 65% from its equity of £13m and trades at 4X book value. The PER is 14X and the yield 5%

 

  • Conclusion This shares are cheap for a company producing 65% ROCE with significant barriers to entry in their space of outsourced services to investment professionals financial intermediaries and stockbroking services to retail and institutional clients.  And available stock on a decline in profitability may represent an opportunity.