The Financial Grimes: 27 June 2019 - XPS Pensions, Liontrust

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.

It was interesting hearing Nick Leeson talk about risk controls last night at the small cap dinner. His bosses not understanding what he was doing ensured that they came to ask him about the exception reports from custodians and he was able to argue the custodian was amalgamating trades from others.  The lack of understanding by people overseeing a business is something many of us will have come across.  I am sure it applies to many lenders that have failed, as well as Quindell and others.  The fact that only 5 out of 75 companies in the financials space use ROE in CEO incentives suggests to me a continued lack of understanding of the purpose of capital markets by boards.

Liontrust – FY Results     

Share Price: 718p

Mkt Cap: £364 million

Conflict Disclosure: No holding

Liontrust Asset Management (LSE:LIO) are a specialist fund management company.

Subject to market risk this remains a good value stock compounding very effectively.  I sense a strong culture will ensure the strong share price performance will continue.

Results - Adjusted PBT up 10% to £30.1 million and EPS up 10% to 46.9p from revenue also up 10% to £85 million. AUM of £12.7 billion at end March has since increased to £14.06 billion (10.6%) by 25 June. The chairman's statement makes invigorating reading about the perils of markets in his "47th year in the industry". Despite efforts to diversify, the growth of the economic advantage process ensures it remains at 49% of AUM, while the Sustainable team accounts for 29.5%. The fixed income team looks to have strong prospects, growing AUM from £186 million to £419 million over the period. Outlooks look forward with great confidence.

Estimates - Results are politely ahead of estimates. Going forward estimates look for 9% PBT growth. Given the 11% rise in AUM since the year end this looks a very comfortable place to be.

Valuation - PER 14X yield 3.7%. EV/AUM 2.3%

Manolete Partners – FY Results 

Share Price: 527p

Mkt Cap: £229 million

Conflict disclosure: No Holding

Manolete Partners (LSE:MANO) is an insolvency litigation financing company.

The easy money has been had here and with the share price discounting 150% uplift in profits shareholder returns may become harder.

Results – Revenue up 30% to £13.8 million and pre exceptional EBIT up 77% to £7.2 million. EPS up 70% to 13p. Investment book up 70% to £18.2 million, while the company still has cash of £9.7 million, giving gross assets of £32 million. RO opening E was 28%. A record new case pipeline results in a confident outlook

Estimates – PBT is ahead of the £6.6 million consensus. A 38% increase is anticipated going forwards for the current year

Valuation Per 31X yield 0.6%. 6.8X book value for an ROE of 28% suggests the share price may be discounting a doubling of the return after the new capital is added from the historic £19 million. So that's about 150% uplift.

XPS Pensions – FY Results 

Share Price: 160p

Mkt Cap: £326 million

Conflict Disclosure: No Holding

XPS Pensions GroupXPS Pensions Group (LSE:XPS) is a pensions consultancy.

The word "growth appears 27 times in the results statement.  This is not a growth market and there is a "temporary" hiatus for profits growth. Expensive.

Results - Revenue up 75% to £109 million. Adjusted EBITDA up 51% to £27.4 million and adj EPS up 18% to 9.8p. Dividend up 5% to 6.6p. The outlook guides to 5% revenue growth with a £2 million step up in the cost base which will lead to a temporary impact on profit growth. Trading is reported to be in line with these expectations.

Estimates - Results are in line with expectation but the 10% growth anticipated going forwards is coming down

Valuation - PER 14.4 yield 4.6%

Harwood Wealth Management – H1 Results 

Share Price: 122p

Mkt Cap: £77 million

Conflict disclosure: No holding

Harwood Wealth Management (LSE:HW.) is a financial planning and discretionary wealth management firm.

Both AFH Financial (LSE:AFHP) and Harwood are cheap and offer strong growth in a growth market.  Perhaps they will remain cheap due to the potential equity raises for acquisitions, but the Clydesdale facility here ensures that when equity is raised it will be off the back of considerable higher EPS.

Results AUI up 23%. Revenue up 6% to £16.1 million. Adj EBITDA up 28% to £3.46 million. Adj EPS up 28% to 4.48p and dividend up 8% to 1.17p. The outlook refers to a healthy pipeline of acquisitions and a new external bank facility to persue them so confidence to deliver profitable growth.  Free cash is £2.2 million and there is a £7 million facility with Clydesdale.

Estimates Full-year estimates to September anticipate £7.2 million EBITDA and 9.3p EPS.  With 48% of this being delivered in H1 the risk is on the upside, particularly with a pipeline of acquisitions.

Valuation PER 11.5x, yield 3.25%

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.