Financial Grime 18 July 2018

Jul 18, 2018 / Financial Grime

Lighthouse – Contract renewal 

Share Price 38p

Mkt Cap £49m

 

  • News Another contract renewal with the Association of School and College Leaders as preferred provider of financial advice which represents 19,000 education professionals. The aggregate membership of Lighthouse’s affinity partnerships is 6m individuals in the UK.  As the tectonic plates of financial services move the intellectual property from product manufacture to distribution it has led Robo adviser Nutmeg to have the ability to raise £71m in equity.  The excitement is around post pension freedom access to Middle Britain and harvesting the assets from Middle Britain in a cost effective way.

 

  • There is little competition to Lighthouse’s position as adviser to Middle Britain as few businesses have the extensive distribution across the UK that Lighthouse offers as well as the experience.

 

  • Valuation The PER is now 21X which compares to the acquisitive Harwood on 24X and AFH (who once approached Lighthouse) on 17X.

 

  • Conclusion Lighthouse is a mere £49m market cap and the revenues last year from the affinity partnerships grew 41% while the Robo Nutmeg has raised £71m to date to fund its loos making Robo idea. If only Lighthouse used the word “Robo” instead of “adviser of choice for Middle Britain”.

 

Close Brothers – Pre Close Update 

Share Price 1522p

Mkt Cap £2.3bn

 

  • Update Banking, which accounted for 84% of the operating profit last year grew it loan book 6.6% driven by commercial and property lending. Little change in the low impairment ratio is reported while the NIM is also stable. Winterflood (10% of EBIT last year) has also delivered a good performance while the asset management division reports total client assets up 8% to £12bn.

 

  • Estimates Consensus is anticipating 5% PBT growth in the year to July 2018. So Close can claim to be bringing the magical white bunny out of the hat with an above consensus performance over the year as they have in every year I can remember.

 

  • Valuation PER is 11X and yield 4.2%. The ROE is 15% and the price/book 1.7X which is very cheap.

 

Conclusion The reason the shares are cheap is the company is taking a cautious view of the outlook and earnings in the current year are expected to be flat which doesn’t add up to a very enticing investment case. With companies such as Metro Bank trading at a PER of 52 falling to 27X it seems that the market doesn’t share the cautious view of banks.  This arbitrage is likely to result in a bid for Close Brothers as it has done twice in the past. In the past the bids were blocked by Caledonia who no longer have a stake.  A £20 plus take out price is not difficult to justify.