The Financial Grimes: 19 June 2019

This top City analyst reviews the financial sector stocks making headlines today.

Jeremy Grime spent 15 years as a financial sector analyst, working at Altium Capital, RBC Capital Markets, Panmure Gordon and most recently as Director of Research at finnCap. Jeremy is also a qualified accountant.

Jeremy’s blog is written with more experienced investors in mind. However, we have included a brief glossary at the bottom of the page to help those less familiar with some of the language used. For more on key financial metrics and valuation ratios click here.

Clear evidence emerged yesterday of how much markets worry about trade wars (see Dow Jones index chart below).

Mattioli Woods (LSE:MTW) completes the cancellation of the option to acquire 51% of Amati in return for £750k payment.  The sacrifice of value to maintain strong performance underlines the exceptional culture in this company.

Randall & Quilter – CEO change  

Share Price: 175p

Mkt Cap: £350 million

Conflict disclosure: I hold

Randall & Quilter (LSE:RQIH) is a specialist non-life Legacy insurance investor 

Ken Randall recently sold 3 million shares at 185p and still holds close to 6% of the company.  As the architect of the new simplified strategy the market may need some convincing that joint CEO's is the right solution to succession.  Looks like this could be listless until the results prove the positive outcome later this year. 

News – Ken Randall is stepping down as CEO and becoming executive chairman. Roger Sellek and Alan Quilter are to become joint CEO's

Valuation - PER is 10X and yield 5.35%. There is no trading update, but the company was on track to achieve £600 million of program business by the end of this year, which could potentially represent £30 million of revenue with little marginal cost.  The NAV of the insurance business is £175 million.

Saga – AGM   

Share Price: 38p

Mkt Cap: £421 million

Conflict disclosure: No Holding

Saga (LSE:SAGA) offers products and services like insurance and holidays exclusively for the over 50s

This rating has to look interesting. Debt is £322 million which is not too high given £100 million plus of profits.  The problem is that warnings normally come in three's because of the human trait of denial. The dividend has been cut and the recovery plan is visible. I could get excited about the savings products, while the direct insurance broking model may alienate some brokers. I suspect we may be somewhere close to the trough.

Statement - Trading is "broadly in line" with expectations. In the largest business, insurance, broking volumes are down 6.5%, while gross margins are in line with guidance at £71-£74/ policy. Tour Operations booked revenues are down 4%, while cruises are more resilient, although a £3 million loss is expected from cruises.  The savings business will launch in the autumn.

Estimates - On April's warning the company said it expected profits to be £103-£120 million and consensus seems to be at £110 million.  "Broadly in line" suggests £105 million.

Valuation - PER is 4.5X and yield 10%

For information about Jeremy's 'deep dive' company analysis, you can email him at jeremy@charltonillingworth.co.uk

Jeremy Grime is an independent equity markets analyst and freelance contributor, not a direct employee of interactive investor.