Financial Grime - 2 November

Nov 02, 2018 / Financial Grime

News

  • Peer 2 Peer Good to see Wellesley & Co the peer 2 peer lender report a profit for last year, something few peer 2 peer lenders have achieved
  • Lenders Monzo raised £85m funding this week at a £1bn pre money valuation. That is termed “Seroes E” and they plan a crowdfunding round and backers are General Catalyst and Accel who join Passion Capital, Goodwater, Thrive Capital, Orange Digital Ventures and Stripe. The bank has reached “contribution margin positive” which is before customer acquisition cost. Revenue is coming from the overdraft product currently which is potentially where Morses may start to earn some revenue when they start to roll out their banking lite strategy in 2019.  Morses however yields 5.3% and trades on a PER of 10.6X. Just sayin’
  • Agents As housing market struggle I see eMoov has been put up for sale as it struggles financially following its merger with Tepilo and Urban in the spring. In more illiquid markets human intervention seems to be more effective which may have some read across to Purple Bricks.

          Purple Bricks share price is down 43% this year and at £582m market cap trades at 3.5X       forecast April 19 revenue.  It is also expected to lose £16m. The following year forecasts are for a £14m profit.  Purple Bricks does have £92m cash so may get through these tricky housing markets but 3.5X revenue is still anticipating improved markets it would appear to me.

AFH Financial – Acquisition 

Share Price 379p

Mkt Cap £159m

  • Acquisition AFH acquires Premier Wealth Management today for up to £4.5m based in Harrogate
  • Valuation They are paying 6X revenue and 12 X last years (Dec 17) PBT but note that since that time the business has experienced significant growth in both revenue and profits. On current run rate the multiples are 3.75X revenue and 5X profits. AFH trades at 2.8X October 18 profits and 19.6X earnings.
  • Conclusion This does look a highly priced acquisition so we have to bet the growth trajectory will continue post acquisition.  But in a world where there are not enough financial advisers to fulfil demand the odds are in their favour. Harwood trades at 21.7X October 18 and Lighthouse, with a more organic strategy trades at 14.6X Dec 18. 

TPICAP – Trading Statement and Acquisition

Share Price 288o

Mkt Cap £1.6bn

  • News Revenue in 4 months to October was up 1% to £568m and over the 10 months to October is 1% lower at £1.478bn but at constant exchange rates was 3% higher.  Data and Analystics grew 11% and 7% year to date and Institutional Services grew 7% year to date which accelerated to 7% in the last 4 months. Results are expected to be “in line”. They also announce the acquisition of Atlas, a US energy and commodities brokerage firm for $18.2m which is 3.4X the PBT of $5.3m it produced in December 2017.
  • Estimates  Modest revenue growth is expected over the next two years. PBT in Dec 19 is expected to be £223m which gives EPS of 31.6p and the dividend 17.4p
  • Valuation PER 9.1X and yield 6%. They have just acquired Atlas at the bargain valuation of 3.4X PBT.
  • Conclusion  If they can keep acquiring at 3.4X PBT then there is potential for a roll up but that seems an unlikely outcome. The growth from the analytics side will take a while to achieve enough scale to move the dial but this could be OK for the patient investor. But I can’t help wondering why a vendor would sell at 3.4X.