The Financial Grimes: A value play and another opportunity

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.

Nucleus Financial – AUA Update

Share Price 179p

Mkt Cap £127 million

Conflict Disclosure: No Holding

Nucleus Financial Group (LSE:NUC) provides a so-called wrap platform for financial advisers.

• Update Customer numbers up 5.5% over the three months to June resulted in AUA up 6.9% to £15.3 billion. Net inflows were 0.7% of the 5.5% increase over the period. Flows are a little behind AJ Bell's (LSE:AJB) 2.5% but AUA increase is in line with AJB's 7%.

• Estimates anticipate a modest reduction in revenue but a 15% PBT increase to £6.5 million. With AUA up 6.9% year on year this looks very comfortable. 

• Valuation PER 25.9 is a lot less than AJB on 57.1. Yield 2.8%

• Conclusion The premium for the market leader is huge. This looks good value in comparison.

Begbies Traynor – Placing

Share Price 78p

Mkt Cap £89 million

Conflict Disclosure: No holding

Begbies Traynor (LSE:BEG) is a consultancy specialising in corporate recovery and restructuring.

• Update. The company is raising £8.3 million at 75p per share by accelerated bookbuild to finance further acquisitions. Having made four acquisitions last year, this looks like a sign of confidence the company has identified further acquisitions that it can make.

• Estimates Begbies recently acquired Barker Story Matthews at 3X PBT. If they can achieve that with the £8.3 million proceeds it would add £2.8 million to PBT which would be a 30% uplift on this year's forecast foe 10% share issuance.  Looks like we can look forward to some useful earnings enhancement ahead.

• Valuation PER 14.2X Yield 3.6%

• Conclusion The company seems to be getting rather comfortable with the acquisition routine. It has been acquiring at higher ROE than its existing business. Further, the expansion of the footprint expands the referrals from other professional services business enabling the company to report better organic growth. And so the acquisition spiral starts.  There is a long way to go from this small base, so this looks like a good opportunity. We just need to keep a weather eye on the risk that, when acquisitions slow, so will organic growth. But that is way beyond the horizon from here.

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.