The Financial Grimes: This could become a highly-rated stock

by Jeremy Grime, an ii contributor |

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

Enjoyable Brexit rhetoric in Wetherspoons' (LSE:JDW) update today.  There are only two lines on the company's "unchanged" trading.

Alpha FX – Trading Statement   

Share Price 725p

Mkt Cap £269 million

Conflict Disclosure: I Hold

Alpha FX (LSE:AFX) helps companies and institutions manage their foreign exchange exposure.

  • Statement Revenue for H1 expected to be £15.6 million, a 60% year on year increase.  Driven by Core UK corporate as well as Europe revenues accelerating from the London-based team. Canada is yet to contribute meaningful revenues, but the company is confident. Alpha pay, launched in Dec is "well received". The office move will increase costs but earnings are expected to be "ahead of expectations"
  • Estimates Full-year revenue expectations are £29.2 million. 53% of this has been delivered in H1 and, with a 60% year-on-year growth rate, there is considerable scope for upgrades.
  • Valuation With a PER of 33.8X and yield of 0.9% the price is anticipating upgrades.
  • Conclusion The ROE is 21% and the company's embedded and recurring revenues, which are growing fast, makes me suspect this is a company that could sustain a high rating as successive upgrades are delivered. The shares have come back since Argetex came to market at a far lower valuation, but Argentex is "advisory" forex.

 

Equals Group (previously FairFX) – Trading Statement  

Share price 125p

Mkt Cap £205 million

Conflict Disclosure: No holding

Equals Group (LSE:EQLS) is a low-cost payment services provider. 

  • Statement Turnover up 17.5% year on year to £1.3 billion with some margin improvement. The corporate expense product grew 34.7% and international payments grew 14.4%. Travel money was down 8.9% as the group cancelled some low margin travel cash affiliate partnerships. Banking turnover rose 36.7% to £358 million on the back of improved technology and the new credit broker license. The company is confident it will achieve full-year expectations
  • Estimates Full-year estimates are for £10 million PBT and £32.6 million revenue, a rise of 24.6%. EPS 6.5p.
  • Valuation 12-month rolling forward PE is 16.6X
  • Conclusion The story around the new banking products is very strong but the ROE today is 8%.  This could develop into a highly-rated stock but it isn't there yet, and there are more competitors eyeing up this lucrative FX space that the banks have left wide open. With 30% EPS growth forecast to December 2020 the shares will probably also appreciate 30%. But I do want to know who thought up such an odd name.

 

Charles Stanley – Trading Update 

Share Price 276p

Market Cap £140 million

Conflict Disclosure: No holding

Charles Stanley (LSE:CAY) is a wealth manager.

  • Update AUM increased 1.2% over the quarter to £24.1 billion which includes net outflows of £0.6 billion (2.4%). Discretionary AUM grew 3.1% while advisory and execution only fell.  Revenue for the quarter was up 5.9% to £41.5m
  • Estimates The looks modestly ahead of the anticipated 4.7% revenue increase for the year to March 2020, while the improving margin is expected to deliver 27% PBT growth to £12.7 million.
  • Valuation PER 15.2X Yield 3.4%. Price/Book 1.32 and ROE of 8.8%
  • Conclusion The company continues to make progress towards the 15% margin target. That would equate to £24 million PBT, close to double this year's forecast. That would be c 40p EPS, putting the company on 7X its target.  This is cheap, but when it gets there (which isn't without difficulty) it then isn't a business with growth.   There is some upside but also some risk.
Glossary
PBT profit before tax
EPS earnings per share
DPS dividend per share
ROE return on equity
EBITDA earnings before interest, tax, depreciation and amortisation
PER price earnings, or PE ratio
Yield dividend yield
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
OTC over-the-counter
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@charltonillingworth.co.uk

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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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