The Financial Grimes: A company I suspect will succeed

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.

Aquis Exchange- H1 Results 

Share Price 475p

Mkt Cap £129 million

Conflict Disclosure: No Holding

Aquis Exchange (LSE:AQX) is a pan-European cash equities trading venue.

• Results – Revenue up 165% to £3.4 million and the EBITDA loss was £160k. Cash was £11.2 million. The number of trading members is only 29, up from 27, but the company is close to break even and since the year end has agreed to acquire NEX exchange for £1.

• Estimates. The company is forecast to lose £1 million in the year to December 2019 from Revenue of £6.5 million, before turning a profit of £2.4 million in 2020.

• Valuation Chi X Europe was taken over 4 years post formation just as it turned profitable for $300 million in 2011. Perhaps we shouldn't concern ourselves that it trades on 53X Dec 2020 earnings.

• Conclusion My recent meeting was one of those rare meeting you leave genuinely excited.  In excitable moments I am imagining 3X upside until I remember they still only have 29 clients. And I hope NEX exchange can become profitable to disrupt the stranglehold of the expensive NOMAD's.  It is well financed so I suspect this company will succeed.

K3Capital – FY Results 

Share Price 167p

Mkt Cap £71 million

Conflict Disclosure: No Holding

K3 Capital Group (LSE:K3C) is a disruptive innovator within the business sales marketplace.

• Results – Revenue was down 18% to £13.6 million driven by a reduction in the larger transactions completing. £5 million EBITDA is a little ahead of expectations but as previously guided at the top end of the range. Net cash was £5.8 million. EPS 9.43p and a reduced dividend maintaining the 80% payout ratio 7.6p DPS. The all important outlook statement has one key line "corporate finance transaction fee income in Q1 20 has exceeded the year FY19". It concludes the company is "confident".

• Estimates – £4.6 million EBITDA was anticipated for May 2019.  £7.5 million EBITDA estimate for 2020 is a big increase and is in tact from the original IPO I believe.  With the lumpy transactions coming through in Q1 we can all relax.

• Valuation PER 13.9X May 2020 with a yield of 6.9%.

• Conclusion Going up

JTC Group – H1 Results 

Share Price 475p

Mkt Cap £452 million

Conflict Disclosure: No Holding

JTC Group (LSE:JTC) is a multijurisdictional, independent provider of institutional and private wealth services. 

• Results Revenue up 32% to £46.6 million. Underlying EBITDA up 35% to £14.3 million which is a healthy 30.6% EBITDA margin. Net debt is £60.9 million, which is a full 1.9X pro forma EBITDA. Organic growth calculated at 8.2% and new business enquiry pipeline of £33.1 million. Outlook is confident for 2019 and beyond.

• Estimates Full year PBT of £28.5 million is anticipated, EPS 22.5p, from which a 5.3p dividend is expected.

• Valuation PER 21X Dec 2019, yield 1.1%

• Conclusion These are good results.  I really don't see the structural growth the company refers to so regard this company as an acquisition machine engineering organic growth from cross selling. Consequently with a leveraged balance sheet there could either be a placing or growth slows.  I would be saying thank you for the 45% share price appreciation this year.

Personal Group – H1 Results 

Share  Price 381p

Mkt cap £119 million

Conflict Disclosure: I Hold

Personal Group (LSE:PGH) is a leading UK provider of employee services, including employee benefits and insurance products. 

• Results Revenue up 42% to £30 million. PBT up 5.6% to £4.1 million. EPS up 8.6% to 11.4p. DPS up 1.3% to 11.65p and net cash £19.2 million. The £4.1 million PBT is after a £542k provision release which may be non recurring. Transactional spend over the Hapi platform has increased strongly and the Saas business has increased revenue strongly while the delay in the Sage is holding back growth. The negative well as the slowing down of new business wins in the core insurance business. The new CEO's strategy aims to double EBITDA by 2025. Outlook states that revenue and PBT are in line with expectations although EBITDA is now expected to be lower.

• Estimates £10.4 million PBT anticipated for FY 2019 which is EPS of 26.2p. Dividend 23.3p. looks full but the company says they are trading in line.

• Valuation PER 14.5X, Yield 6.3%

• Conclusion This company has multiple potential exciting new business streams that could transform this into a growth business. But 85% of EBITDA is derived from the core insurance business which is a cash cow.  The shares are valued as a cash cow, seemingly correctly.  The patient investor may be well rewarded as the company transitions but there is no catalyst today.