The Financial Grimes: Why I'm increasingly bullish now

by Jeremy Grime, an ii contributor |

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.

I find myself increasingly bullish at the moment. Or maybe I have just had a holiday and by the end of the week it will have gone. 

Seemingly macro fears have led to risk aversion. The FTSE 100 is 7.7% down from its peak in May 18, while the FTSE Small Cap index is 18% down over the same period, and AIM is down 21%.  While by and large earnings have gone up over the same period.

I am struggling to see a huge recession coming, particularly if we are to get a fiscal injection as Boris throws deficit caution under the bus.  The result is some nice cheap stocks at the smaller end.

Premier Asset Management 

Share Price 167p

Mkt Cap £177 million

Conflict Disclosure: No Holding

Premier Asset Management (LSE:PAM) is a UK retail asset management group.

  • Deal A good example of these markets is Premier Asset Management who announced a merger with Miton Group (LSE:MGR) last week.  The deal included £7 million of cost synergies before we start to consider some distribution benefits. In the context of Premier's £18 million PBT estimate for September 2019 and Miton's estimated £8.3 million PBT to December 2019 this is a reasonably material cost saving number. Given the new company will be 70% Premier, 30% Miton the cost saving alone could be 27% enhancing to Premier shareholders.  Admittedly it takes 3 years to deliver the savings but the shares are entirely unchanged since the deal.
  • Conclusion Possibly the market doesn’t think the cost savings will come through. Possibly the increased liquidity in the stock, the increased diversity of the funds and the distribution synergies will amount to nothing.  Or perhaps the share price is wrong.  While I am sure some will find it depressing, but for those with a more sunny outlook on life it may be an opportunity. 

Others 

Companies that are either inefficiently priced or doomed that come to mind are:

The fact that there are so many lenders on that list suggests the cause may be macro risk aversion.  Either that is right or there is an opportunity. If anyone would like to meet with any of those companies do let me know.

 

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
ARPU average revenue per user
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.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation, and is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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