The Financial Grimes: Sanne crashes 30%, cheap shares

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.

Liontrust – Potential Acquisition

Share Price 814p

Mkt Cap £412 million

Conflict Disclosure: No Holding

• Acquisition The Sunday Times reported asset manager Liontrust (LSE:LIO) is close to acquiring Neptune with 19 funds and £3.6 billion AUM. Liontrust has £14.1 billion AUM of which 48% is held within the economic advantage process and 30% in the sustainable process.

• Estimates Revenue for the year to March 2020 is forecast to be £98.6 billion, with a 36% operating margin delivering £35.3 million PBT.  Neptune would add 25% to AUM and 20% to net revenues.   The price is alleged to be £25 million which would be a lowly 0.7% of AUM.  The accounts for Neptune show a modest profit but net revenue yields are 61 basis points. If the margins became anything close to Liontrust's 36% there could be some material earnings enhancement

• Valuation PER is 14.6X for Liontrust. Cash is £36 million.

• Conclusion  This would diversify further Liontrust's concentration risk. Although it is concentrated in attractive funds.  It's all about earnings enhancement but looks like a nice idea. If it happens.

London Stock Exchange – Potential Acquisition 

Share Price 5672p

Mkt Cap £19.8 billion

Conflict Disclosure: No holding

• Acquisition. London Stock Exchange (LSE:LSE) is in advanced talks to acquire Refinitiv. The acquisition of Refinitiv from Balckstone adds Eikon, Tradeweb and FXAll to the LSE's stable for £20 billion. Refinitiv has 40,000 customers and 150,000 data sources.

• Conclusion  Bloomberg is cited as the main competitor. But Bloomberg has c.340,000 terminals globally which is 8.5X more than Refinitiv's customer numbers. Bloomberg's revenues are c $10 billion.  I am struggling to see this as competition for Bloomberg just yet.

River & Mercantile -Trading Statement

Share Price 266p

Mkt Cap £227 million

Conflict Disclosure : No holding

River and Mercantile (LSE:RIV) is an asset manager.

• Update AUM up 15% to £39.8 billion, driven by net inflows of 8% which is £3 billion. The fiduciary business has seen a strong return to growth following the CMA review in contrast to XPS pensions who failed to disclose the CMA review as at all relevant in their IPO prospectus. The outlook is positive on markets.

• Estimates Look for 10% PBT growth and 22% EPS growth to 18.8p per shares

• Valuation PER 14.1X and yield 6.3%

• Conclusion The shares have come back 32% from their high last year and are compelling value.

TBC Bank – H1 Results

Share Price 1242p

Mkt Cap £689 million

Conflict Disclosure: No Holding

TBC Bank (LSE:TBCG) is Georgia's largest retail bank.

• Results Underlying net profit up 18.8% to 258 Georgian Lari (GEL) which represents an ROE of 22.3%. ROA 3.3% (2018 3.1%). Cost Income 37.9% and cost of risk 1.3% (2018 1.6%). NIM however reduced from 5.3% to 4.6%. Total assets GEL 17.3 billion from equity of GEL 2.3 billion. Leverage is 7.3X

• Estimates Forecasts expect 19% PBT growth for the year, so this looks in line.

• Valuation PER 5X Yield 6.2%. 1.1X book value for 22% ROE. Cheap. Bank of Georgia (LSE:BGEO) is 1.4X book value and has a lower ROE.

• Conclusion These shares are extremely cheap.

Sanne Plc – Trading Update

Share Price 752p

Mkt Cap £1.1 billion

Conflict Disclosure: No Holding

Sanne (LSE:SNN) provides trust and fund administration services

• Update The company says revenue growth is "very strong". That is 17%, of which 13% organic. Record new business. H1 margin is 26%. Full-year margin expectation now 28% to 30% which is below expectations.

• Estimates This looks like a 10% downgrade from the £53 million operating profit expected for full year.

• Valuation PER 26.5X yield 2%
• Conclusion The downgrade is put down to elevated overhead and investment, so it is company specific.  Strange it takes until the 29 July to work out costs when the period being reported on is to 30 June.

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.