Chart of the week
We need a positive chart for a Monday. This is the swap rate minus the 1 month LIBOR yield curve which has “uninverted”. This tells us that the markets assessment of credit risk has reduced implying an improvement in economic conditions. Happy Monday.
Weekend
St. James’s Place PLC (LON:) allegations of sexism and using confidential data to target potential clients in the Sunday Times
Tatton Asset Management PLC (LON:) – H1 Results
Share Price 214p
Mkt cap £119m
Conflict Disclosure: I Hold
Results AUM up 22.8% over 12 months to £7bn, which is 14.7% over 6 months, so accelerating inflows. Revenue up 15% to £9.73m and adjusted operating profit up 23.2% to £4.13m. EPS up 17.9% to 5.39p. Net cash £9.2m. Tatton grew revenue 19% while delivering a 60% operating margin, and Paradigm revenue was up 7% delivering a 35% operating margin. The outlook refers to improved efficiencies and trading is said to be in line.
Estimates Full year estimates to March 2020 anticipate £9.7m PBT, of which 43% has been delivered in H1.
Valuation PER 16.9X, yield 4.5%. The investment platform is a scalable platform making 60% operating margin, which with the very high ROE potential should be highly ratable. If we (possibly heroically) said that Paradigm pays for the central costs that leaves Tatton IM valued at 13.9X the run rate profits at the current market cap.
Conclusion I like this one. I feel the market has focussed on the Paradigm business and so overlooks the modest valuation placed on the Tatton IM business. That value should come out over time.
AFH Financial (LON:) – Trading Update
Share Price 275p
Mkt Cap £118m
Conflict Disclosure: No Holding
Update Revenues for FY to October expected to be £74m. EBITDA expected to exceed £17m and FUM reached £6bn in October. Despite the new focus on organic growth the board remains confident of the aspiration of £140m revenue and 25% EBITDA margin (£35m). Cash is £11.9m.
Estimates I am looking at a consensus forecast of £79.3m revenue so results look a little shy of forecast and EBITDA expectation was £17.7m so “in excess of £17m) may also be a little shy.
Valuation PER 9X and yield 3%
Conclusion The shares have fallen back 34% from their highs. It is always difficult to move from a strategy of acquisition to organic growth. Historically this has often resulted in slowing organic growth. There are also reports of high staff turnover at AFH. The shares are cheap and the statement is upbeat but there could be some growing pains going on underneath. It may take 12 months until we get pure organic like for like numbers and until then there are some risks.
Alpha Financial Markets Consulting (LON:) - Acquisition
Share Price 194p
Mkt Cap £200m
Conflict disclosure: No Holding
Acquisition Obsidian Solutions is acquired for £5.7m cash plus an undisclosed earn out. . Obsidian was founded in 2015 and provides cloud based Saas for business intelligence, client portals, KYC and reporting.
Estimates No No financials are provided for Obsidian, but it is expected to be earnings enhancing for the year to March 2021.
Valuation PER 13.9X, Yield 3%. 16% EBITDA growth is expected for the year to March 2020. H1 results are expected on 20 November.
Conclusion The shares are 28% off their highs. The valuation is starting to look persuasive and with a catalyst of results on 20 November this could be an opportunity.
Ince Group (LON:) – Trading Update
Share Price 121p
Mkt Cap £45m
Conflict Disclosure: No Holding
Update Performance is expected to be in line with expectation for the full year to March 2020. H1 Results are expected on 28 November and the company notes the greater part of its revenues are traditionally in H2.
Estimates The “in line” statement suggests no change though the H2 weighting is never a good look.
Valuation PER 5X, yield 6.2%. 0.5X EV/Revenue
Conclusion The valuation suggests the market doesn’t trust this acquisitive business which is more diverse than comparators. If this valuation is sustained the company may lose its acquisition currency and end up going private. Both that outcome or a re-rating are positive outcomes for shareholders.
