Financial Grime 19 September 2018

Sep 19, 2018 / Financial Grime

News & Thoughts

  • Close In 2007 Cenkos bid for Close Brothers. They wanted Winterfloods who execute over 50% of all trades on AIM. Peel Hunt are strong in retail trade too. Cenkos planned to offload the bank to an Icelandic bank but Caledonia blocked the bid. This time round Santander are looking at Peel Hunt who last sold to a bank in 2000. It is possible Santander may find the bank alongside Winterfloods a more interesting prospect. And Caledonia have sold out of Close Brothers. Sum of the Parts gets to £20-£25 for Close against todays £16.38
  • AFH – Announce £4bn AUM. In capital letters
  • Alpha FX  - Social Media tell me Alpha are actively acquiring for their new Toronto office.
  • Personal Group – Yesterday my note said that the CEO was standing down immediately rather than over the next 12 months following an orderly hand over. Apologies if I gave the impression of the early demise of the CEO.

 

Randall & Quilter – Acquisition and H1 results

Share Price 181p

Mkt Cap £228m

  • Results – H1 profit on continuing operations up 40% to £7.78m. EPS was down from 7.9p to 5.2p following the issue of shares in November 2017.  Distrobution of 3.6p (2017 3.5p). Net assets per share 133p (2017 124p). Encouragingly bith the Program Business is ahead of the 12 programs they expected to write and the Run off (“Legacy”) business is now expected to be “substantially” ahead of expectations following the acquisition below.
  • Acquisition – The company announces the acquisition of a US property and casualty run off business with net assets of $82m for $80.5m cash. The business delivered a profit of $15m last year. Due to the substantial operational synergies once regulatory approval is obtained R&Q will obtain a capital release resulting in a substantial gain in the current year along with ongoing reserve releases over time.
  • Estimates  This will result in “substantial” upgrades to the current year estimate of £19.6m PBT. Encouragingly the upgrades come from both sides of the business, with the program business being more predictable than the run off business.  The program business targeted 12 programs this year and now expects to exceed this.
  • Valuation Last year the company achieved a 17% ROE and made only 6.8% in H1 this year though H2 is likely to substantially exceed this.  This should be worth 2X book value which is 235p per share. The PER on current estimates in 13X and yield 6.7% but this is before substantial upgrades
  • Conclusion This company has a significant market opportunity over the next 3 years which is now being evidenced by upgrades.  I have in mind that it could make £30m profit which would be a 20% ROE.  Certainly worth 235p.

 

Thinksmart – FY Results

Share Price 14p

Mkt Cap 14p

 

  • Results to June 2018 Business volumes up 17% to £13.7m (FY17: £11.7m). Revenues down to £8.1m (FY17: £10.1m) as company moves away from Upgrade Anytime product as well as a lease accounting method that transitions to spreading revenue over term of lease rather than earning upfront commission. EBITDA down to -£0.59m (FY17: £0.54m). Cash and cash equivalents of £2.5m (FY17: £4.5m), increasing to £10.5m as at August 2018 given the sale of 750,000 Afterpay shares as part of the ClearPay deal.
  • Estimates We aim to introduce estimates once we have clarity on how ThinkSmart will execute on their numerous upcoming opportunities. The company announced a strategic alliance with a global bank which will allow them to use the bank’s balance sheet and increase market penetration in the retail point of sale market; they have £60m available for growth; and they’re investing in technological IP for further expansion. Reduced cost base post-ClearPay deal likely to move the company closer to profitability.
  • Valuation We retain our conservative price target of 33p and reiterate the huge opportunity contained in ThinkSmart’s residual holding of ClearPay under the management of Afterpay, a A$3.8bn global market leader. With cash now at £10.5m and a further 250,000 Afterpay shares available for sale, ThinkSmart is worth 25p today at the very least, assuming 1.5x price/sales. This price ignores the residual ClearPay holding.
  • Conclusion The company do not sit on their hands. They have successfully launched and subsequently sold innovative point of sale product ClearPay while managing to hold a residual ownership that is likely to bring substantial returns by the end of the 5 year deal term. Concurrently, an alliance with a global bank and investment in technology suggests similar success are likely in future.