Daily Grime - City Of London Inv. Group; Rosenblatt Group

Daily Grime - City Of London Inv. Group; Rosenblatt Group

Jeremy Grime  | Sep 16, 2019 09:50

City Of London Investment Group (LON:CLIG) - FY Results

Share Price 420p

Mkt Cap £111m

Conflict Disclosure: No Holding

  • Results – FUN $5.4bn at 30 June is up 6% over the year while management fee revenues were down6% to £31.9m and PBT down 11% to £11.4m. EPS down 12% to 34.9p and the full year dividend payment amounts to 40.5p of which 13.5p was a special dividend. The average AUM was down 3% over the year while the fee margin declined 5% to 76 bps while costs increased in part due to the new REIT team joining. The outlook is “optimistic” and hopes for a return to profit growth in the current year. It also encourages all shareholders to both “attend the AGM” and “read the rest of this report”.
  • Estimates Results are in line with estimates and for the current year a 3% improvement in pre tax profit is anticipated to £11.7m.
  • Valuation EV/AUM is 2.1%. PER 11.5X, Yield 6.4%. The only share cheaper fund manager on an EV/AUM basis is Premier/Miton at c 2%, while Jupiter trades at 3.3%.
  • Conclusion With Barry Olliff leaving at the end of December combined with a volatile share the shares are cheap. The company has invested in staff and new teams and I suspect the risks of management change may well turn out to be benefits. The shares could do well, or corporate activity may benefit shareholders

    Rosenblatt Group (LON:RBGP) – Acquisition

    Share Price 88p

    Mkt Cap £71m

    Conflict Disclosure: No Holding

  • Acquisition – Rosenblatt is buying a Manchester based corporate finance boutique, Convex Capital Limited for up to £22m, 40% in cash, 60% shares with initial consideration of £13.6m. The company is changing its name to RBG Holdings Plc, as it evolves to become a broad based supplier of professional services. The acquisition is immediately and materially earnings enhancing. Last year Convex delivered £8.7m revenue and £4.3m PBT, which would make the maximum acquisition cost 5.1X PBT and 2.5X last years revenue. Trading is confirmed to be in line with 1 August update. That update confirmed the corporate division was experiencing delays while overall trading was in line.
  • Estimates The acquisition involves potentially the issue of £13.2m shares, which is 18.6% of the market cap, while adding last year’s Convex PBT increases PBT by almost 60%. That maths suggests 50% plus earnings enhancement
  • Valuation PER 11.9X, Yield 5.1%.
  • Conclusion: Rosenblatt has the lumpiest of the lawyer revenues. Adding another unpredictable corporate transaction based business to create earnings enhancement doesn’t necessarily make a good investment. Finncap have done the same with Cavendish. I can’t help but feel there is a reason these corporate finance boutiques don’t float on their own. And to do this at a time when corporate transaction are being delayed according to Rosenblatt’s 1 August statement has a defensive feel. The maths of earnings enhancement is very different to efficient capital allocation. We can expect a de-rating.

    Jeremy Grime

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