The Financial Grimes: I suspect the market will applaud

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.

Schroders – H1 Results

Share Price 2973p

Mkt Cap £8,071 million

Conflict Disclosure: No Holding

Schroders (LSE:SDR) is a British multinational asset management company.

• Results  Revenue down 5% to £1,032 million and PBT down 14% to £340.6m. AUM up 9% to £444.4 billion. Net outflows of £1.2 billion. Underlying EPS down 13.5% to 98.6p. Dividend unchanged at 35p for H1. It isn't easy to reconcile the numbers to the narrative.  "We have continued to focus on our core business……in a challenging market" doesn't seem to fit with net outflows and market gains. The outlook is confident "in a challenging market".

• Estimates Pre tax profit of £688 million is anticipated for the year which looks in line with £341 million being delivered in H1.

• Valuation PER 15X Yield 3.8%.

• Conclusion The net operating margin declined by 1bp to 44bps in asset management.  While average AUM over the half was 2% lower and the company is looking forward to onboarding £45 billion of Lloyds (LSE:LLOY) assets which are coming over from Aberdeen. It feels a bit like Schroders has now got too large – as Aberdeen did – and has to sell its services ever more cheaply. The premium rating perhaps represents the markets view of how safe Schroders is. I suspect the market is wrong.

Rosenblatt – Trading Update 

Share Price 101p

Mkt Cap £81 million

Conflict Disclosure: No holding

Rosenblatt (LSE:RBGP) supplies a comprehensive range of legal services to its clients.

• Results. Full year results are expected to be in line with trading second half weighted as is usual. The group is taking on more cases that are contingent while the corporate division, driven by M&A, is slower. The litigation funding  now has seven cases in progress with four under consideration. An update on the accounting methodology will be provided at interim results. Note that Burford currently fair values its cases while LCM holds them at cost. 

• Estimates No change

• Valuation PER 13.7X Yield 4.4%

• Conclusion   Looks cheap with a lot of upside from the litigation funding arm.

London Stock Exchange – H1 Results and Acquisition

Share Price 6626p

Mkt Cap £23,171 million

Conflict Disclosure: No Holding

London Stock Exchange Group (LSE:LSE) is a stock exchange located in the City of London.

• Results/Acquisition The acquisition of Refinitiv is for $27 billion in an all share deal. Combined annual revenues are expected to be £6 billion and grow at 5-7%. Cost synergies are targeted at £350 million over 5 years and the EBITDA margin target is 50% "in the medium term". H1 results for LSE showed revenue up 8% to £1,018 million and operating profit up 11% to £533 million, a margin of 52%. Net debt was £870 million.

• Estimates& Valuation Clear financial guidance gives revenues of £6bn and a 50% EBITDA target which is £3 billion. Refinitiv brings net debt of $12.5 billion.  EV/EBITDA would therefore be 15.3X on a pro forma basis.  Pre the deal the LSE trades on a PER of 34X and yields 1%

• Conclusion The shares aren't cheap but strategically this moves the LSE to a strong position. I suspect the market will applaud.

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.