The Financial Grimes: The patient investor may benefit here

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

News

• Plus500 (LSE:PLUS) announces more director purchases this morning. Their advertising is all over my facebook page. Just wonder if they are doing rather well at the moment.

• Platforms Last week Octopus entered the platform market acquiring start up Seccl, which provides a white label platform for IFA's, for £10 million. This equates to c. £100% of AUM which certainly brings tears to the eyes. 

• Meanwhile in the retail platform space the Yodelar review of Nutmeg makes painful reading. They conclude that their poor returns and lack of competitive investment options means they just don't appeal to consumers. Just after Investec wrote off £20 million closing their robo and OBS has closed their Robo this year, SmartWealth.

Wealth Manager Consolidation

• Tilney are in talks to acquire Smith & Williamson. Tilney has £24 billion and Smith & Williamson £21 billion AUM. This would make it a large competitor to Brewin Dolphin (LSE:BRW) and Rathbone (LSE:RAT) who have £44 billion and £49 billion AUM each. Potentially this could introduce more competition for  these two companies that produce reliable good margins. The Sunday Times referred to them as "mature" businesses.

• Valuation  The EV/AUM is on the vertical axis and the number of bps of AUM that drops into profit is on the horizontal access below.

• Conclusion The pressure is on Rathbone. Costs are increasing under a new CEO who is yet to produce a new strategy while the valuation relative to it strong profitability is full. We get a strategy update in October.

Park Group

Share Price 62p

Mkt Cap £116 million

Conflict Disclosure I Hold

Park Group (LSE:PARK) is the UK's leading multi-retailer redemption product provider to corporate and consumer markets.

• Consolidation Last week Oakley Capital acquired a majority stake in Seven Miles, a German company founded 5 years ago in the gift voucher space. It is expected to sell gift solutions in excess of euro 100 million this year. By way of read across Park Group did £426 million of billings last year so more than 4X the size and £116 million market cap. So a majority stake would cost twice as much. There is plenty of headroom between quoted company valuations and many private company valuations.

• Valuation Park trades at a PER of 12 and yields 5.1%

• Conclusion Park Group is yet to reveal its mysterious new product.  If it was ever to become a growth stock there is valuation and earnings upside. Or it could get consolidated where there is plenty of upside. The patient investor may benefit.