The Financial Grimes: This share has huge potential upside

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

Recession

It may be different this time. But I doubt it. The last five recessions were preceeded by an inverted yield curve giving on average 19 months warning. We are currently four months beyond the early warning light going on.

Tungsten – FY Results  

Share Price 49p

Mkt Cap £62 million

Conflict Disclosure: No Holding

Tungsten Corp (LSE:TUNG) is a digital invoicing provider.

• News Full year to April shows a 6.1% revenue increase on continuing business and an underlying EBITDA contribution of £2.5 million though an operating loss of £2.8 million  (2018 £2 million). Net cash is £2.6 million. The board has been largely restructured and revenue growth is expected to accelerate through new customer acquisition, new products and partnerships. The statement uses those words "second-half weighted".  The adjustments need some scrutiny as "cost of sales" are excluded of £1.9 million and "Network financial expenses of £3.2 million are excluded"

• Numbers 7% revenue growth is anticipated. The anticipated EBITDA profit of £0.5 million looks too low at £0.5 million, so this may be upgraded today but a reported loss is anticipated of £4.1 million.

• Valuation 1.7X revenue has the potential to at least double the valuation if the company made reasonable operating margins. But that isn't in forecasts

• Conclusion This is frustrating. This share has huge potential upside, but 7% revenue growth won't deliver that upside.  With a solid foundation, a tight balance sheet and lacklustre growth there may be better things to invest in until the platform can be monetised.

JTC  – H1 Pre Close Update  

Share Price 352p

Mkt Cap £397 million

Conflict Disclosure: No Holding

JTC (LSE:JTC) provides fund, corporate and private wealth services.

• Update The company is said to have performed well, with results expected to be in line with expectations. Both organic and inorganic growth opportunities are being seen. Organic growth target of 8%-10% is reiterated and the 30-35% EBITDA margin objective.

• Estimates.  32% revenue growth is anticipated for Dec 19 to £102 million with a 33% EBITDA margin.

• Valuation  PER 14.5X and yield 1.63%. The shares have derated and are off 12% over 12 months.  

• Conclusion Shares are looking better value, but the organic growth target is unsustainable as it is derived from cross selling to acquisitions. When the acquisitions dry up so will organic growth.  

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.