Financial Grime 3 October

Oct 03, 2018 / Financial Grime

Funding Circle closed last night at 364p which compares to a 440p IPO price on Friday. Maybe the purge of loss makers with high valuations has started.

UK Market ownership 

  • Past Its a different world to when I first worked for an insurance company as a fund manager. I answere an advert in the FT because no one wanted to be a fund manager. It was the brokers that got highly paid back then.  Now it’s the other way round.  And the insurance company’s and pension funds no longer own the equities. They are all in low risk bonds at a time when bon yields are the lowest for a century or two. 
  • Future No doubt it will be a different world again in 20 years time.  My bet is that individuals will take control of their money and the Individuals will grow significantly. As well as the charities as the disintermediation of brokers is followed by the disintermediation of the fund managers.  A good case for owning Hargreaves Lansdown (if only they didn’t charge so much) and AJ Bell.
 

Ownership of UK Equity Market

 

%

%

 
 

1998

2016

Change

Rest of the world

31

56

25

Insurance companies

22

5

-17

Pension funds

22

3

-19

Individuals

17

9.5

-8

Unit Trusts

2

9.1

7

Investment trusts

1.3

2

1

Other financial institutions

2.7

8.1

5

Charities

1.4

1.1

-0

Private non financial companies

1.4

2.6

1

Public sector

0.1

1.5

1

Banks

0.6

2

1

Randall & Quilter – Acquisition 

Share Price 207p

Mkt Cap £261m

  • Acquisition At 3.11pm yesterday they announced the acquisition of Coffey’s Irish captive insurance company which will be administered by R&Q’s Malta subsidiary. No numbers are provided.  The company says it remains excited about its legacy acquisition pipeline and says it is aware of further acquisitions in Ireland.  It refers to pressures of a soft market, Solvency 2 as well as Brexit driving divestment of insurance books.
  • Estimates With no numbers mentioned its impossible to estimate whether this is forecast sensitive. The house broker expects £29m of continuing profits for the current year and it would be expected that when this acquisition completes a release of capital will follow as well as a profit.
  • Valuation Before this acquisition the shares trade on an underlying PER of 10.8X December 2018 and yield 4.5% from a distribution which is 2.1X covered.
  • Conclusion  As interest rates rise the £600m cash which is largely held in dollars will increase earnings along with the unique position the company has in both fronting and run off being better placed in the current structural changes than it has been for 30 years. Since I used to audit the PB Coffey syndicates.

Ramsdens – Pre Close Update

Share Price 164p

Mkt Cap £50m

  • Update  Profits for 6 months to September are expected to be in line. Jewellery retail and pawn has done well while Forex has reduced due to staycations over the hot summer.
  • Estimates Consensus looks for £6.5m PBT for the year to March 19 up from £6.3m last year
  • Valuation PER is 9.6X, yield 4.4%. ROE is c 19% and the shares trade at 2X book value. H&T trades at a PER of 9.6X and yield 3.2%. It makes a lower ROE of 11% and trades at 1.1X book value
  • Conclusion Ramsden’s FX driver is over and now the upside from retain and personal loans is set to drive the upside in H&T. Time to switch horses.