The Financial Grimes: Takeover bids and quality portfolios
This top City analyst reviews the financial sector stocks making headlines today.
17th July 2019 09:00
by Jeremy Grime from ii contributor
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This top City analyst reviews the financial sector stocks making headlines today.
- Brooks Macdonald (LSE:BRK)Â has a nice new shiny London office at 21 Lombard Street.
- Saga (LSE:SAGA)has a shiny new Chief People Officer from Connect Group (LSE:CNCT).
- Sanne (LSE:SNN)Â has settled with the Jersey Financial Services Commission (JFSC) for a non material amount of money.
Plus 500 – Consolidation
Share Price 656p
Mkt Cap £743 million
Conflict Disclosure: No Holding
- News Betaville reports yesterday that Gain Capital (+26%) has received an offer from online trading platform Plus500 (LSE:PLUS). Gain Capital, listed in the US has a market cap of $185 million and is forecast to lose $25 million in 2019 before turning a profit of $27m in 2020.
- Numbers With £315 million cash on Plus' balance sheet this could be perhaps 10% earnings enhancing in 2020 for Plus.
- Valuation PER 5.5X and yield 11%.
- Conclusion Normally when a market is in a state of change it is a useful thing to do to consolidate competitors. However, Plus' valuation tells us the cash could better be used by taking the company private. It was the very large bonuses paid to management last year which makes me think the company is unlikely to become investable again. Shareholders would be better served by a take private.
Arbuthnot Banking Group – H1 Results
Share Price 1,360p
Mkt Cap £202 million
Conflict Disclosure: I Hold
- Results Underlying PBT up 26% to £2.9 million . Loan book up 16% to £1,275 million and deposits up 18% to £1,829 million . AUM down 4% ( up 4.5% since Dec 18).  Divisionally, the bank made £6.7 million (2018 £5.4 million ) before group costs of £3.7 million . Private bank delivered £2.1 million of this (2018- £4.5 million ), Commercial Bank £2.99 million (2018 £-0.85 million), Renaissance £0.67 million (2018 £0.85 million ) , and "Other" was £0.76 million (2018 £0.65 million ). The decline in the Private Bank is down to not chasing unprofitable business, while Renaissance suffered from yield compression. Outlook is confident.
- Estimates.  Full year forecasts anticipate 28% PBT growth to £9.2 million . EPS 51.6p. DPS 37.3p. Â
- Valuation  PER 23.6X Yield 2.8%. ROE is currently 2.6% from a low operating margin. NAV is £13.21 per share so it trades a little above the NAV.
- Conclusion The share price is close to NAV because of the low return being delivered. This is a question of scale which is taking a while in this environment of yield compression and competitive lending markets. With high overheads, the company needs to double its profits before the shares will start to respond. With a well run, high-quality portfolio I don't doubt the company will get there. But it may take a while.
| Glossary | |
|---|---|
| PBT | profit before tax |
| EPS | earnings per share |
| DPS | dividend per share |
| ROE | return on equity |
| EBITDA | earnings before interest, tax, depreciation and amortisation |
| PER | price earnings, or PE ratio |
| Yield | dividend yield |
| FCF | free cash flow |
| NAV | net asset value |
| Price/Book (PB) | a company's share price versus what it owns |
| Book Value | a company's worth after subtracting debts and liabilities from assets |
| AUM | assets under management |
| FUM | funds under management |
| OTC | over-the-counter |
| FCA | Financial Conduct Authority |
| ESMA | European Securities and Markets Authority |
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.
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