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.
Randall & Quilter – Portfolio Transfer
Share Price 180p
Mkt Cap £353 million
Conflict Disclosure: I hold
Randall & Quilter (LSE:RQIH) provide core services of legacy acquisitions and program management.
- News The company has a agreed to underwrite the liabilities of two Californian education insurers. The limit on the cover will be $113 million. The transaction has been effected by a portfolio transfer rather than an acquisition. The statement refers to this as a sizable acquisition and notes the company expects to announce a number of additional acquisitions during the rest of the year.
- Estimates No financial effect is given, although usually one would expect a profit to be effected when the portfolio is transferred. On Monday this week RQIH acquired a portfolio for $25 million when the net assets were $41 million. While profits on this type of business are not reliable or growing the returns are potentially high. The ROE estimated this year 20% but forecasts are flat into 2020. These deals will put upside pressure on forecasts while the program management business is continuing to build a sustainable profit stream.
- Valuation PER 9.7X yield 5.3%
- Conclusion Following the sale of shares by Ken Randall and his move to Chairman the shares have been becalmed. The profits are likely to be high this year but the shares are more likely to respond when the program management side of the business starts to deliver.
Arbuthnot Banking Group – Portfolio Acquisition
Share Price 1,335p
Mkt Cap £198 million
Conflict Disclosure: No holding
Arbuthnot Banking Group (LSE:ARBB) is a private bank
- Acquisition £258 million acquisition of a mortgage portfolios. £201 million have LTV of 67% and are 80/20 owner occupier/BuytoLet while the £65 million portfolio is all owner occupier and 70% LTV. The yield is 3.6%.
- Estimates – If the companies makes a 1% return on these assets it could add 20% to the pretax forecast of £9.1 million for this year, which is expected to grow 27% from 2018.
- Valuation PER of 25X is high for a bank with a yield of only 2.9% when the ROE is only 4%. But it trades at net asset value.
- Conclusion Another step to scaling the loan book. When it makes a 12% ROE it may trade at 1.5X book value. That would require profits of 3X this year's estimate. So to own this share you need to believe forecasts are too low. I am happy with that.
|PBT||profit before tax|
|EPS||earnings per share|
|ROE||return on equity|
|EBITDA||earnings before interest, tax, depreciation and amortisation|
|PER||price earnings, or PE ratio|
|FCF||free cash flow|
|NAV||net asset value|
|Price/Book (PB)||a company's share price versus what it owns|
|Book Value||a company's worth after subtracting debts and liabilities from assets|
|AUM||assets under management|
|FUM||funds under management|
|FCA||Financial Conduct Authority|
|ESMA||European Securities and Markets Authority|
For information about Jeremy's 'deep dive' company analysis, you can email him at
Jeremy Grime is an independent equity markets analyst and freelance contributor, not a direct employee of interactive investor.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation, and is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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