Daily Grime - PCF/XPS/AJB/BRK

Jeremy Grime | Oct 24, 2019 11:44

Interest rates

If there is ever proof that history repeats its this letter to the economist magazine from 1858 complaining about the speculative mania causing folly and disaster deriving from cheap money. It was nice to find this just as Softbank takes control of Wework, and Schroders (LON:SDR) is appointed to manage the Patient Capital trust.

XPS Pensions (LON:XPS) - Pre Close Update

Share Price – 110p

Mkt cap £224m

Conflict Disclosure: No Holding

Update H1 performance is expected to be in line with previously re set expectations. Revenue overall is expected to be up 8% driven by administration up 19%, investment up 11% and flat consulting.
Estimates October 2019 PBT is expected to be £24.9m which is a modest improvement on 2018 followed by 5% growth in PBT going forwards
Valuation PER 11.2X, yield 6%. River & Mercantile trades on 13.9X and yields 6%.
Conclusion The shares are now cheap but unexciting. I suspect there may be better prospects at River & Mercantile where they have more direct benefits from the CMA review.
PCF Group plc (LON:PCF) – Trading Update

Share Price 30p

Mkt cap £75m

Conflict Disclosure: No Holding

Update Lending portfolio is £338m, up from £276m at the half year. New business originations grew 51% as the company moves towards the prime credit grades.Accordingly NIM is reducing to 7.9% from 8.2%. The medium term target is 7%. Impairment charge is unchanged at 0.9%. Azule, the broadcast media lending business grew originations 40% in 11 months vs the 12 month prior period meaning the deferred consideration of £750k will be paid in November. Bridging originations were £14m.
Estimates 56% growth in PBT to £8.1m is expected to September 2019, followed by 35% growth to £10.9m in 2020. With all the metrics tracking as expected this looks comfortable. PE 10.7X yield 1.3%.
Valuation The company targets a loan book of £1bn with an ROA of 3% which is PAT of £30m. The ROE target corresponding with this is 15% which implies £200m of equity. At the half year the equity was £56m and the loan book is now £338m. ROE today is c.10% and the shares trade at 1.3X book.

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Conclusion The shares have fallen 23% over the last 12 months as the market turns its back on lenders. The shares are now very cheap. As they move to a more prime credit risk this will be one that prospers in a difficult environment and thus looks a good time to be ‘avin a few.
AJ Bell (LON:AJBA) – Trading Update

Share Price 371p

Mkt cap £1.52bn

Conflict Disclosure: No Holding

Update Customer number up 19% to 218,169 and AUA up 16% to £44.9bn which implies an “average” size of £205k. Advised was up 13% while D2C was up 28%. Organic flows over the year were 9% in advised and 18% in D2C.
Estimates 16% revenue growth and 33% PBT growth is expected which should cause any trouble for the scorers. Going forward 16% PBT growth is forecast.
Valuation PER 49.3X yield 1.3%
Conclusion The fast growth of the D2C assets may well show some accelerating trend towards investors taking control of their assets, which will perhaps be enhanced by Woodford. The valuation is eye watering, so is the model.
Brooks Macdonald (LON:BRK) –Q1 FUM update

Share Price £20.9

Mkt Cap £292m

Conflict Disclosure No Holding

Update Small net outflows of 0.2% and improved markets led to an increase in AUM of 1% to £13.3bn. The reduction in outflows from the international business is an encouraging sign of recovery. AUM is up 4.8% year on year. Expectations for the full year are unchanged
Estimates £24.6m PBT is anticipated in the current year, up from £21m last year underlying. This is predicated on a 5% revenue increase.
Valuation EV/AUM 1.9%. Per 14.4X and yield 2.8%
Conclusion Brooks has had a difficult couple of years. The company has interesting recovery prospects now, but it may be a little early to get excited. Time to move it from the back burner to the watch list.

Written By: Jeremy Grime

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