The Financial Grimes: I find myself wanting to own this 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.

• W H Ireland (LSE:WHI) – Lots of red ink. Corporate Broking made £0.5 million profit while wealth management lost £1.5 million.  Loss before write downs £7.2 million and total loss post write downs of £11.3 million. Net cash is £7.7 million.  At 41, the market cap is £15 million. Don't expect that will increase today with work still to do to turn this round.
• Harwood Wealth Management (LSE:HW.) – two acquisitions are announced today in Southend and Portsmouth as well as the completion of the Patricia Hodge business. Combined consideration is £1.8 million.  These shares have fallen 31% since July and look persuasive on a PER of 12 and yield of 3.3%

DWF – FY Results  

Share Price 121p

Mkt Cap £363 million

Conflict Disclosure: No Holding

DWF Group (LSE:DWF) is a law firm.

• Results 15% revenue increase to £272 million. 9% EBITDA increase to £33.6 million and 13% Adjusted PBT increase to £26.1 million which is EPS of 6.8p. Net debt is £35.3 million. The company notes a good start to year and a confident outlook.

• Estimates Forecasts were for a 17% increase in turnover to £277 million and £26.1 million PBT. An uplift to £41.1 million is anticipated in the year to April 2020

• Valuation PER 11.1X Yield 6.1%.

• Conclusion This a diversified play on the legal market.  The reliance on insurance is retarding the growth, but it looks reasonably cheap and should be sustainable. For a while.

International Personal Finance – H1 Results  

Share Price 109p

Mkt Cap £243 million

Conflict Disclosure: No holding

International Personal Finance (LSE:IPF) is a sub-prime lender, often referred to as a 'doorstep' lender

• Results. PBT £56.1 million is flat on the prior year with IPF digital growing strongly.  European home credit delivered £60.2 million PBT from a low impairment rate of 15.7% and 2% increase in credit issued. Mexico reduced its PBT to £3.5 million and IPF digital grew its credit issued by 28% with a modest loss of £0.4 million. The statement confirms profitability is expected in 2019. No new regulatory developments. Outlook is in line with expectations driven by Europe ahead and Mexico behind.

• Estimates FY PBT is anticipated to be £113.1 million

• Valuation PER 4.X Yield 11.6%. ROE 16% and P/Book 0.6X

• Conclusion   The company will update in September when the EU has commented on the Polish regulatory proposals.  There is uncertainty over that, but ultimately this company will be driven by the Digital business.  Currently we are in the dark on the effect of the European interest rate caps.  The darkest moment however is always before dawn. I suspect that may be towards the end of this year.

St. James's Place – H1 Results  

Share Price 1,043p

Mkt Cap £5,538 million

Conflict Disclosure: No Holding

St. James's Place (LSE:STJ) is a wealth management business.

• Results. Net inflows of 4.6% drove AUM up 13% over the year. IFRS PBT was down 30% to £57.5 million following a hit from the FCS compensation charge as well as investment in the academy, lower gross inflows providing less upfront fee and investment in Asia and infrastructure.

• Estimates £290.1 million PBT is sought for the FY to December. Look steep.

• Valuation PER 24.5X Yield 4.8%

• Conclusion Really very overvalued for an overcharging marketing machine. The profit fall may be partly because post Woodford investors are wondering why they pay so much.

Liontrust Asset Management – Acquisition  

Share Price 802p

Mkt Cap £407 million

Conflict Disclosure : No Holding

• Acquisition £2.8 billion of Neptune AUM being acquired by Liontrust Asset Management (LSE:LIO) for up to £40 million, which is 1.4%of AUM, which is all payable in shares.  Neptune is loss making at the run rate level and there will be £18 million of exceptional costs. Post reorganisation, Neptune is expected to make margins in line with Liontrust's and so be earnings enhancing from March 2020.

• Estimates Earnings enhancement is likely to be minimal, but strategically this adds some useful processes to diversify Liontrust as well as distribution. March 2021 revenue estimate is currently expected to be £107 million. This may add £25 million revenue so, if we impute a 35% margin, we get £46 million PBT.

• Valuation  If we use £46 million PBT and allow for £40 million share issuance we get a PER of 12.1X.

• Conclusion This looks like it works for Liontrust.  The company is refueling on product to put down its distribution pipe and now has the potential to become significantly larger. I find myself want to own this.

Man Group – H1 Results  

Share Price 166p

Mkt Cap £2,564 million

Conflict Disclosure: No Holding

Man Group (LSE:EMG) is a UK hedge fund manager.

• Results  AUM up 5% over six months to $114 billion. Net outflows $1.1 billion and positive investment movement of $6.8 billion. PBT up 3% to $157 million, but within this Management fee revenue was down 4.7% and performance fee revenue up 67% as 90% of the AHL funds are at high water mark. Asset weighted underperformance was 1.1% for the six months and core management fee EPS was down 27% to 4.7 US cents.

• Estimates £295 million FY PBT is anticipated. If performance continues this is light but only due to performance fees

• Valuation PER 12.3 Yield 4.6%. If we annualise the core earnings we get a PER of 22X core profits.

• Conclusion  Can't see any attraction here. The performance fees are driven by market momentum. When that turns it may be an idea to stand at a safe distance.

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.