Financial Grime 12 September 2018

Sep 12, 2018 / Financial Grime

Yesterday it was hugely reassuring to see the technology based financial platform Nucleus doesn’t capitalise any of its software development costs at a time when it is making significant investment.  Hargreaves Lansdown, which is in a steadier state of investment capitalised £9.6m of internally generated software last year. Just sayin’

Charles Taylors – H1 Results  

Share Price 275p

Mkt Cap £213m

  • Results Revenue increased 21% to £123.4m and adjusted PBT increased 9% to £8.5m. Adjusted EPS declined to 10.22p while the dividend was increased 5% to 3.48p. Net debt was £52.7 which compares to £35.6m in 2017. The traditional mutual business showed flat revenue while profit increased from £5.2m to £5.5m. Adjusting increased revenue 14% to £40m which resulted in an improved 7.2% operating margin while the insurance support services business, increasingly the focus of the group produced £52.4m revenue and contributed £0.7m PBT.
  • Estimates The outlook says trading is in line with management expectations.  Forecasts look for a 10% reduction in EPS to 22.2p for the full year and an 11.7p dividend.
  • Valuation PER is 12.4X and yield 4.3%. The return on capital is c 10%
  • View This is a company in a state of change from a cash generative mutual management and insurance adjusting business which has high intellectual property but is hard to grow into a business that can grow from providing technology to the Lloyds market.  The company has a little more to do yet so it may be a little early but the valuation is interesting and for the patient investor the share will provide rewards as the insuretech business produces returns in due course.  Hurrican Florence won’t harm them in the meantime

 

OnePM – FY Results  

Share Price 55p

Mkt Cap £47m

  • Results Revenue up 78% year on year to £31m and PBT up 93% to £7.9m.  EPS up 24% to 7.57p and the dividend is up 30%.  Outlook is optimistic. Receivables at the year end were £142m and the impairment charge was 1.2% from net assets of £48m. Gearing was 4.8X net tangible assets at the May year end which compares to the covenant of 5.5X and the average borrowing cost was 4.1%. The group has available facilities of £162m. The 12% NIM and 1.2% impairment is a model set to make strong returns
  • Estimates Results are in line with expectations and forecasts anticipate an 11% improvement in the year to May 19.
  • Valuation PER is 7.4X with a modest yield of 1.4%. ROE of 12% is valued at a modest discount to book value
  • View It is understandable for the market not to trust a high growth acquisitive SME lender.  All the company has to do is continue to deliver and the valuation anomaly will correct. The shares will then be valued at 1.5X book value which provides 60% upside on the share price.