The Financial Grimes: 24 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 asDirector of Researchat 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 clickhere.

Weekend news:

Bloomberg Barclays Greek Government bond index is up 780% since 2012. Forget equities

Morses Club – Acquisition 

Share Price: 155p
Mkt Cap: £201 million
Conflict Disclosure: No holding

This is a pivotal moment for Morses Club (LSE:MCL) as it transitions from being a reliable high ROE home-collected credit business to a growth business driven by digital banking. The gap between the PER of 11, yield 5% and Monzo’s valuation is large enough to drive a flock of highly paid bankers through it. This growing business will attract a new breed of investor which will drive the valuation. Investors will do well.

Acquisition -Morses acquires U Holdings Limited which has 20,000 digital current account holders for £5.8 million cash up front and £5 million deferred.  The business had £1.7 million of turnover last year and lost £4 million, but post the acquisition is expected to lose £1.4 million-£1.7 million over the rest of the year to Feb 2020, and subsequently be earnings enhancing.

Estimates -Consensus looks for £22.7 million PBT in the year to Feb 2020, which is 14.1p EPS and an 8.4p dividend.  The statement says the dividend will be at least maintained at 7.8p, so dividend estimates may come down a little while the PBT estimates for 2020 may come down by c7%.

Valuation - PER 10.6 and yield of 5.7% before changes for the acquisition

Polar Capital Plc – FY Results 

Share Price: 582p
Mkt Cap: £561 million
Conflict disclosure: No Holding

Polar Capital (LSE:POLR) is an active fund manager.

The company looks set fair given the recent fund launches feeding the pipeline and the momentum of the current AUM.  I suspect as the fund supermarkets gain dominance we are in a new era of niche fund managers prospering, rather like the dominance of the retail supermarkets has led to a proliferation of craft beers and craft cheeses.  This is an incubator of craft funds and is set to prosper as long as they stick to their specialisms.  

Results – PBT is up 55% to £64.1 million. AUM of £13.8 billion at end of March has grown to £14.1 billion at 31 May.  Five new funds were launched in the year.  Core operating profit was up 52% to £42.2 million on the back of net management fees increasing 25% from average AUM up 23% demonstrating operating leverage. Core operating margin was 34% and performance fee margin 46%.  Performance fee profit was £24 million (2018 £15.3 million). EPS up 41% to 51.5p and dividends for the year were 33p.

Estimates – Results modestly ahead of the £63.3 million consensus PBT. For the year to 2020 consensus looks for £135 million revenue, which compares to £113 million management fees received last year. That looks light given the continued growth in AUM. 

Valuation - PER is 14.5X yield 5.6%.

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

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