An encouraging update

Numis Corporation 7 July 2020 Update
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Numis Corporation

An encouraging update

Q320 update

Financial services

7 July 2020

Price

314p

Market cap

£334m

Net cash (£m) end March 2020

95.3

Shares in issue

106.3m

Free float

75%

Code

NUM

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.3)

53.5

14.8

Rel (local)

1.9

35.0

35.9

52-week high/low

317p

167p

Business description

Numis Corporation is one of the UK's leading independent investment banking groups, offering a full range of research, execution, equity capital markets, corporate broking and advisory services. It employs c 280 staff in offices in London and New York, and at the end of March 2020 had 209 corporate clients.

Next events

FY20 trading update

September 2020

Analysts

Andrew Mitchell

+44 (0)20 3681 2500

Martyn King

+44 (0)20 3077 5745

Numis Corporation is a research client of Edison Investment Research Limited

Numis’ update for Q320 was positive, reflecting both the need for equity funding in the market and the strength of the group’s franchise as well as its ability to deal with current operating constraints. Subject to the market background in its final quarter, we now expect Numis to achieve a full-year result in line with or ahead of the high end of our previous scenario range.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/17

130.1

38.3

25.9

12.0

12.1

3.8

09/18

136.0

31.6

23.0

12.0

13.6

3.8

09/19

111.6

12.4

8.1

12.0

38.7

3.8

09/20e

135.0

24.6

17.5

12.0

18.0

3.8

Note: *PBT and EPS are on a reported basis and EPS is fully diluted.

Q320 update confirms increased activity

In its update for the three months to end June (Q320) Numis reported that revenues were materially ahead of both Q120 and Q220. Both Investment Banking and Equities performed well. Within Investment Banking, IPO and M&A activity remained at very low levels and the driver has been an increased number of capital markets transactions as companies strengthen balance sheets. Among more than 100 transactions raising c £14.5bn in the period, examples included capital raisings for ASOS (£247m), Beazley (£247m), Ocado (£657m) and Unite (£300m). On the Equities side of the business, trading volumes subsided from the peak seen with the onset of COVID-19, but this was more than offset by a continuation of the strong trading gains from the first half.

Background and outlook

London Stock Exchange data shows a substantial pick up in capital raisings over the last three months (see Exhibits 3 and 4) while the number of new issues remains subdued. The group reports a good pipeline of transactions and, subject to the market background in the final quarter, looks for second half revenues and profits to be ahead of the first half. Given the uncertain background, we had previously shown a range of scenarios rather than a point estimate for FY20, but, following the update, have adopted the high scenario (with revenue of £135m) as our estimate, noting that the outcome could be higher if the market background facilitates a continued strong pace of transactions.

Valuation

Numis shares have responded to higher levels of transactions and trade on a price to book multiple of 2.4x, above the 10-year average of 2.0x but still well below peak levels of around 3.0x during this period. From another perspective, based on a ROE/COE model, the current share price implies a market assumption that Numis can attain a sustainable return on equity of between 18% and 19%. This is above our current year estimate (14%) but in line with a five-year historical average.

Background and outlook

The first chart (Exhibit 1) shows how LSE order book volumes spiked with the onset of COVID-19 but have subsequently reverted closer to prior levels. Exhibit 2 illustrates the sharp fall and bounce back seen in UK equity indices in recent months. Calendar year-to-date, AIM issuers (CBOE Alternative UK 100) are down 6% while the CBOE All-Companies and Small Companies indices are down c 23% and 29%, respectively. Further volatility in index levels, potentially accompanied by higher trading activity, may well be seen as news related to COVID-19 and macroeconomic developments emerges.

Exhibit 1: LSE order book, average daily value traded

Exhibit 2: UK equity indices

Source: London Stock Exchange (Main Market)

Source: Refinitiv, CBOE indices

Exhibit 1: LSE order book, average daily value traded

Source: London Stock Exchange (Main Market)

Exhibit 2: UK equity indices

Source: Refinitiv, CBOE indices

These developments are also set to influence the pace of equity market fund-raising. The next two charts look at trends in equity issuance on the London Stock Exchange Main and AIM markets. Money raised was relatively subdued last year, particularly on AIM. Both markets have seen a marked increase in further issuance in the last four months as companies have issued equity to recapitalise their balance sheets. The Q320 update demonstrated that Numis has played a full part in this activity.

Exhibit 3: Main Market money raised, new and further

Exhibit 4: AIM money raised, new and further

Source: London Stock Exchange

Source: London Stock Exchange

Exhibit 3: Main Market money raised, new and further

Source: London Stock Exchange

Exhibit 4: AIM money raised, new and further

Source: London Stock Exchange

Numis reports a strong transaction pipeline but we note that at some point there could be a pause in capital markets transaction volume between the current phase of activity and the resumption of a more normal period of transactions as the crisis eases. Even so, Numis has demonstrated the strength of its franchise, which together with a strong balance sheet (end H120 cash stood at £95m) should allow it to exploit opportunities as they emerge.

Financials: New estimate for FY20

Our new estimates for FY20 are in line with the high scenario in the range that we set out in our last note in May. To put this in context, we show key numbers for our new estimates compared with the previous mid-range scenario in Exhibit 5. Further details are shown in the financial summary (Exhibit 7).

Exhibit 5: New FY20 estimate compared with prior mid-range scenario

£m unless stated

Previous mid-range scenario

New FY20e

Revenue

125.3

135.0

Other operating income (investment portfolio)

(1.9)

(1.9)

Total income

123.4

133.1

Non staff costs

(34.0)

(34.0)

Staff costs

(72.6)

(74.6)

Operating profit

16.8

24.5

Net finance income

0.1

0.1

Pre-tax profit

16.9

24.6

Tax

(3.2)

(4.7)

Net profit

13.7

19.9

EPS, diluted (p)

12.0

17.5

DPS (p)

12.0

12.0

Return on equity

10%

14%

Total cost/revenue

85%

80%

Total staff cost/revenue

58%

55%

Source: Edison Investment Research

Valuation

Given significant uncertainties surrounding the trading outlook for Numis and its peers we continue to focus on price to book value as a valuation measure at this point. Reflecting the high number of capital market transactions being undertaken, Numis shares have bounced back strongly from their recent low of 167p in March and year-to-date are up nearly 5%. They trade on 2.4x book value compared with a 10-year average of 2.0x and a five-year average of 2.2x. Using an ROE/COE model, the share price at time of writing implies the market is assuming a sustainable ROE of between 18% and 19%; this is above the 14% that our FY20 estimate suggests but similar to the five-year historical average.

Exhibit 6: 10-year history of the price to book value ratio for Numis

Source: Refinitiv, Edison Investment Research

Exhibit 7: Financial summary

£'000s

2015

2016

2017

2018

2019

2020e

Year end 30 September

PROFIT & LOSS

Revenue

 

 

97,985

112,335

130,095

136,047

111,610

135,000

Administrative expenses (excl. amortisation and depreciation)

(65,018)

(76,120)

(83,626)

(94,603)

(85,432)

(95,358)

Share based payment

(4,104)

(6,229)

(10,454)

(10,583)

(10,914)

(10,250)

EBITDA

 

 

28,863

29,986

36,015

30,861

15,264

29,392

Depreciation

 

 

(882)

(1,126)

(1,226)

(1,113)

(1,124)

(2,894)

Amortisation

(111)

(125)

(89)

(49)

(44)

(95)

Operating Profit

 

 

27,870

28,735

34,700

29,699

14,096

26,403

Net finance income

190

37

188

212

550

60

Other operating income

(1,978)

3,759

3,431

1,733

(2,210)

(1,904)

Profit before tax

 

 

26,082

32,531

38,319

31,644

12,436

24,559

Tax

(4,533)

(6,132)

(7,942)

(4,967)

(3,110)

(4,666)

Profit after tax (FRS 3)

 

 

21,549

26,399

30,377

26,677

9,326

19,893

Average diluted number of shares outstanding (m)

117.6

118.0

117.2

115.8

114.9

114.0

EPS - basic (p)

19.5

23.5

27.4

25.1

8.8

18.9

EPS - diluted (p)

 

 

18.3

22.4

25.9

23.0

8.1

17.5

Dividend per share (p)

11.50

12.00

12.00

12.00

12.00

12.00

NAV per share (p)

102.0

113.5

125.0

135.0

131.7

135.2

ROE (%)

19%

22%

23%

19%

6.6%

14.2%

EBITDA margin (%)

29.5%

26.7%

27.7%

22.7%

13.7%

21.8%

Operating margin (before GW and except.) (%)

28.4%

25.6%

26.7%

21.8%

12.6%

19.6%

BALANCE SHEET

Fixed assets

 

 

6,724

5,522

6,147

8,215

6,832

9,671

Current assets

 

 

279,114

312,462

407,850

533,033

326,641

384,773

Total assets

 

 

285,838

317,984

413,997

541,248

333,473

394,444

Current liabilities

 

 

(170,319)

(188,895)

(280,371)

(398,112)

(195,319)

(248,940)

Long term liabilities

0

(12)

0

0

0

(2,736)

Net assets

 

 

115,519

129,077

133,626

143,136

138,154

142,768

CASH FLOW

Operating cash flow

 

 

6,467

48,735

43,369

45,830

(2,748)

42,483

Net cash from investing activities

(3,632)

84

(198)

(1,014)

(77)

151

Net cash from (used in) financing

(17,510)

(19,580)

(36,359)

(29,035)

(24,646)

(26,967)

Net cash flow

 

 

(14,675)

29,239

6,812

15,781

(27,471)

17,391

Opening net (cash)/debt

 

 

(74,518)

(59,591)

(89,002)

(95,852)

(111,673)

(84,202)

FX effect

 

 

(252)

172

38

40

0

0

Closing net (cash)/debt

 

 

(59,591)

(89,002)

(95,852)

(111,673)

(84,202)

(101,593)

Source: Numis accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Numis and prepared and issued by Edison, in consideration of a fee payable by Numis. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Numis and prepared and issued by Edison, in consideration of a fee payable by Numis. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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