The Financial Grimes: I like this cheap recovery stock

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 always lifts my day to be aware that Greggs' (LSE:GRG) Vegan sausage rolls appear in the first line of their "exceptional" results.

Jupiter Fund Management – H1 Results

Share Price 380p

Mkt Cap £1,742 million

Conflict Disclosure: No Holding

• Results Jupiter's (LSE:JUP) Q2 net outflows were 1.4%, an increase from the 1.1% in Q1. AUM however was up from £44.1 billion to £45.9 billion over the quarter on the back of buoyant markets. Net management fees were £182.9 million (2018 £199.2 million ) and PBT was £81.4 million (2018 £96.5 million ). EPS 15.1p (2018 17.3p) and DPS 7.9p (2017 7.9p). Outflows have ceased in the dynamic bond fund. Net management charge remains at 84 basis points and operating margin was 47%.

• Estimates H1 has delivered 49% of the full-year revenue number so, while revenue forecasts look aggressive, the operating margin uplift to 47% may make estimates of PBT conservative.

• Valuation PER 13.8X Yield 6.4%. EV/AUM 3.4%

• Conclusion  Performance looks respectable, but Darwall's exit won't help flows over the coming six months despite being a Woodford beneficiary. I have pencilled in the Q3 update as likely to show further net outflows, and the shares won't recover until flows do.  

Provident Financial – H1 Results

Share Price 415p

Mkt Cap £1,052 million

Conflict Disclosure: No holding

Provident Financial (LSE:PFG) is a sub-prime lender, often referred to as a 'doorstep' lender

• Results. Adjusted PBT is flat at £74.9 million after adjusting out £23.6 million of bid defence costs. Adjusted EPS down 10% to 21.8p (2018 24.2p). Vanquis profit reduced from £97.2% to £85 million on the back of lower revenue yield, while there was a small improvement in impairments. Moneybarn grew profit 46% from £10.6 million to £15.5 million, with revenue yields increasing and impairments reducing. Consumer Credit Division (CCD) continues to be loss making with a £15.5 million loss, driven by a reduction in revenue mitigated by reduced impairments at 38%. Outlook is for "continued momentum". In line with expectations.

• Estimates Unlikely to change materially

• Valuation PER 8.4X Yield 7.2%. ROE 19% and P/Book 1.5X

• Conclusion   The shares are cheap and I find myself attracted to this as a recovery stock. Even post recovery it will be left with a smaller CCD business, Satsuma and a car finance business that is a long term decline business.  I sense to own this I would want a 'doubler' to compensate for the risk, which I can't quite see my way to the shares doubling. Yet. Maybe I need some more of the brave pills.

Gateley Plc – Acquisition

Share Price 166p

Mkt Cap £184 million

Conflict Disclosure: I Hold

Gateley (LSE:GTLY) is a commercial law firm.

• Acquisition Small acquisition of a land consultancy business for £250k up front.  The acquisition is expected to be immediately earnings enhancing.

• Estimates Not material to forecasts

• Valuation PER 11.7X. Yield 5.2%

• Conclusion The beauty of Gateley has always been it's boringness. I am really unsure that property consultancy is a good thing to go charging into.

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.