stock-1863880

Focus remains on long-term value

OTC Markets Group 24 March 2021 Update
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OTC Markets Group

Focus remains on long-term value

Q420 results

Financial services

24 March 2021

Price

US$40

Market cap

US$467m

Net cash ($m) at 31 December 2020

33.7

Shares in issue

11.7m

Free float

62%

Code

OTCM

Primary exchange

OTCQX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.9

13.6

72.8

Rel (local)

3.1

7.2

(1.1)

52-week high/low

US$41.75

US$24.50

Business description

OTC Markets Group operates the OTCQX, OTCQB and Pink financial markets for over 11,000 US and global securities. OTC Link LLC, a member of FINRA, operates OTC Link ATS and OTC Link ECN, both SEC-registered Alternative Trading Systems. Approximately 82% of revenues were of a subscription-based recurring nature in FY20.

Next events

Q121 results

Expected May 2021

Analysts

Andrew Mitchell

+44 (0)20 3681 2500

Martyn King

+44 (0)20 3077 5745

OTC Markets Group is a research client of Edison Investment Research Limited

OTC Markets Group’s (OTCM’s) fourth quarter results exceeded our estimates for the third quarter in a row reflecting continued strong transaction volumes. While these may normalise in due course, OTCM’s long-term focus on enhancing the transparency and efficiency of its markets is being rewarded by increasing regulatory recognition that should progressively contribute to the value of its offering to clients and to its own valuation.

Year end

Revenue ($m)

PBT
($m)

EPS*
($)

DPS**
($)

P/E
(x)

Yield
(%)

12/19

62.8

18.0

1.25

1.25

32.1

3.1

12/20

71.2

21.4

1.53

1.25

26.1

3.1

12/21e

73.6

23.1

1.57

1.25

25.4

3.1

12/22e

76.3

25.0

1.69

1.35

23.7

3.4

Note: *Fully diluted and calculated after restricted stock award allocation. **Including special dividends of 65c each year for FY19–21e and 75c for FY22e.

Q420 results: Strong transaction activity

OTCM reported Q420 revenue of $19.8m, up 23% y-o-y and 13% above our forecast. This was largely the result of continued elevated market trading activity and the addition of new subscribers to OTC Link ECN driving a 73% revenue increase for OTC Link. Market Data Licensing also produced a strong result with revenue up 18%, reflecting a combination of price increases and higher numbers of professional and retail users. Corporate Services revenue increased 6% with a more than trebled contribution from Virtual Investor Conferences and a price increase for the Disclosure and News Service. With expenses up 5% yoy and a lower tax charge, net income increased by 50% to $5.7m and there was a similar increase in EPS. For the full year diluted EPS increased by 22% to $1.53. Cash returned to shareholders during 2020 totalled $18.1m, up 14%. A maintained first quarter dividend of $0.15 has been announced.

Market background and outlook

In its outlook comments the group notes that trading activity has remained strong in the current year but that this may not be sustained. In our estimates we have allowed for some normalisation in activity and assume lower OTC Link revenues for this year and next. Corporate Services revenue is set to benefit from price increases implemented this year and may also see benefits from increased client additions. Market Data Licensing should benefit from product enhancements, but we have tempered our growth assumptions to allow for quieter market conditions in due course. Our FY21 diluted EPS estimate is increased by 9%.

Valuation

The shares trade on P/E multiples in line with global exchanges but below information providers (see Exhibit 12). Supporting the valuation is the high proportion of subscription-based revenue (over 80%) and the potential for development of OTCM’s cost-effective markets.

FY20 and Q420 results analysis

A summary of Q420 and FY20 profit and loss figures is given in Exhibit 1 with comparative figures for Q419, Q320 and FY19 shown. We pick out key points below (comparisons are between FY20 and FY19 unless stated).

Gross revenue at $71.2m for FY20 increased by 13% bolstered by a strong final quarter (+23% y-o-y). The largest percentage and absolute increase (+$4.2m) was in OTC Link (+36%) reflecting continued high levels of equity trading and an increased number of subscribers for OTC Link ECN (see subdivisional revenue analysis Exhibit 2). Market Data Licensing also performed strongly (up $3.7m or 15%) benefiting from increased numbers of data users and price increases implemented at the beginning of the year. Corporate Services was affected by slower new corporate client sign-ups in the first half as the pandemic hampered marketing and decision making. The second half saw a revival in sales and strong demand for virtual events from Virtual Investor Conferences allowing full year revenue to edge up by 2%.

Redistribution fees (+13%) increased with higher data user numbers, while transaction-based expenses (liquidity-provider payments), linked to the OTC Link ECN business and equivalent to just over 60% of its revenue for FY20, tripled reflecting the substantial increase in activity level on this platform.

Operating expenses (before depreciation and amortisation) increased by 5%, mainly reflecting salary and headcount increases (see Exhibit 3 and discussion below for further detail).

This left income from operations and pre-tax profit up 20% and 19% respectively. The effective tax rate was reduced (14.6% versus 16.9%) in part reflecting a release of tax reserves resulting in diluted earnings per share up 22% to $1.53.

A maintained quarterly dividend of $0.15 for the first quarter of 2021 was announced. During FY20 total cash of $18.1m (+14%) was returned to shareholders including dividends of $14.6m (an unchanged $1.25 per share) and share buybacks of $3.5m (FY19: $1.4m).

Exhibit 1: Q420 and FY20 results summary

$000s (except where stated)

Q419

Q320

Q420

% change vs Q419

% change vs Q320

FY19

FY20

% change

OTC Link

2,946

3,816

5,095

73

34

11,676

15,890

36

Market Data Licensing

6,214

7,172

7,358

18

3

24,447

28,133

15

Corporate Services

6,898

6,759

7,326

6

8

26,716

27,206

2

Gross revenues

16,058

17,747

19,778

23

11

62,839

71,229

13

Redistribution fees and rebates

(625)

(689)

(714)

14

4

(2,489)

(2,810)

13

Net revenue

15,433

17,058

19,064

24

12

60,350

68,419

13

Transaction-based expenses

(214)

(614)

(1,362)

534

122

(746)

(3,022)

305

Revenues less transaction-based expenses

15,219

16,444

17,702

16

8

59,604

65,397

10

Operating expenses

(10,061)

(10,525)

(10,530)

5

0

(40,230)

(42,202)

5

Depreciation and amortisation

(449)

(441)

(491)

9

11

(1,492)

(1,761)

18

Income from operations

4,709

5,478

6,681

42

22

17,882

21,434

20

Other income / net interest

17

(35)

(19)

(206)

(49)

103

(27)

(126)

Pre-tax income

4,726

5,443

6,662

41

22

17,985

21,407

19

Taxes

(918)

(984)

(934)

2

(5)

(3,043)

(3,133)

3

Net income

3,808

4,459

5,728

50

28

14,942

18,274

22

Diluted EPS ($)

0.32

0.37

0.48

51

28

1.25

1.53

22

Operating margin (%)

30.5

32.1

35.0

29.6

31.3

Tax rate (%)

19.4

18.1

14.0

16.9

14.6

Source: OTCM, Edison Investment Research. Note: Transaction-based expenses arise from payments to subscribers adding liquidity to OTC Link ECN under the maker-taker fee structure.

Exhibit 2 shows an indicative subdivisional analysis of gross revenue based on management commentary in the FY19 and FY20 reports. The most salient point is the jump in revenue for OTC Link ECN resulting from both the volatility in equity markets and a continued increase in participants. It accounted for 7% of gross revenue but netting off transaction-related expenses, which primarily relate to this activity, would leave its share of total net revenue after transaction costs at just over 3%. In Market Data Licensing, the revenue increase for professional user licences was the main absolute contributor to growth. Non-professional users generated a 35% increase in revenue, but this was from a substantially lower base, reflecting the lower subscription cost per customer. The main Corporate Services revenue components, OTCQX and OTCQB, were relatively stable against a challenging market background, although a lower average corporate client count meant OTCQB revenues were down 4%. This was more than offset by other activities, notably Virtual Investor Conferences, which recorded very strong growth, hosting 27 conferences in the year with 387 companies participating (prior year 18 and 213 respectively).

Exhibit 2: Indicative subdivisional revenue analysis

$000

FY19

FY20

Change

Change %

Comments

OTC Link

OTC Link ECN

1,491

5,091

3,600

239%

Market volatility and subscribers increased from 53 to 73

OTC Link ATS message revenues

3,363

3,901

538

16%

High market activity

QAP One Statement

453

702

249

55%

High market activity

Other

6,370

6,197

(173)

-3%

Fewer active broker dealers on OTC Link ATS (84 versus 87)

11,676

15,890

4,214

36%

Market Data Licensing

Professional user licence subscriptions

12,353

14,453

2,100

17%

Price increase plus a 5% increase in users

Non-professional users

1,666

2,249

583

35%

Increased retail participation in US equity markets

Broker dealer licence fees

2,319

2,922

603

26%

Mainly price increases

Other

8,109

8,509

400

5%

Within this advertising and end-of-day pricing service were lower

24,447

28,133

3,686

15%

Corporate Services

OTCQX

9,409

9,500

91

1%

Lower sales and retention in Q120 offset by stronger sales H2

OTCQB

11,607

11,160

(447)

-4%

Fewer companies on market on average

Virtual Investor Conferences

293

761

468

160%

Strong demand for virtual events

Disclosure and news service

3,700

3,959

259

7%

Price increase

Other

1,708

1,827

119

7%

26,716

27,206

490

2%

Source: OTCM, Edison Investment Research. Note: Subdivisional absolute numbers are nearly all calculated from absolute and percentage changes given in both the Q419 and Q420 reports and are therefore approximate.

Exhibit 3 sets out the changes in operating expenses between FY19 and FY20. As noted, the main driver was the increase in compensation costs, which reflected a combination of base salary (4%), bonus (13%), share-based expenses (14%) and headcount increases (from 99 to 102 at the respective year ends). The increase in professional and consulting costs was mainly linked to OTC Link ECN clearing and regulatory costs.

Exhibit 3: Analysis of operating expenses

$000s unless stated

2019

2020

Absolute change

% change

Comments

Compensation and benefits

26,994

28,896

1,902

7.0

Salary, bonus and headcount increases

IT infrastructure and information services

6,382

6,452

70

1.1

One-off datacentre costs dropped out and lower costs following office move offset investment in security and support for ECN and new product

Professional and consulting fees

1,982

2,704

722

36.4

Higher ECN clearing/regulatory costs with volume + support costs for Virtual Investor Conferences business

Marketing and advertising

1,117

807

(310)

(27.8)

Lower travel and entertainment spend

Occupancy costs

2,548

2,303

(245)

(9.6)

Absence of overlapping rent costs incurred in FY19

Depreciation and amortization

1,492

1,761

269

18.0

Acquisition of Qaravan, investment related to new HQ and in two datacentres

General, administration and other

1,207

1,040

(167)

(13.8)

Project management costs incurred in 2019 dropped out

Total

41,722

43,963

2,241

5.4

Source: OTC Markets Group, Edison Investment Research

Exhibit 4 collates operating and related revenue data showing year-on-year and quarter-on-quarter changes. Under the OTC Link heading, increases in trading volumes are substantial for each of the market segments with OTCQX most marked. For Corporate Services, the second-half pick up in new client sign-ups in the second half is evident in the quarter-on-quarter net increase in OTCQX and OTCQB client numbers. The rise in non-professional market data subscribers is striking and reflects the increase in retail investor activity seen in recent periods. Historically the number of subscribers has been quite volatile, and it remains to be seen whether the change in retail investor activity is part of a longer-term trend.

Exhibit 4: Operating and related revenue data

Q419

Q320

Q420

% change y-o-y

% change q-o-q

OTC Link

Dollar volume traded

OTCQX

13,836

17,021

34,082

146.3

100.2

OTCQB

4,494

6,942

9,468

110.7

36.4

Pink

58,950

69,988

82,828

40.5

18.3

Number of securities quoted

10,755

11,381

11,758

9.3

3.3

Number of active ATS participants

87

82

84

(3.4)

2.4

Number of ECN subscribers

53

69

73

37.7

5.8

New form 211 filings

59

196

154

161.0

(21.4)

Revenue per security quoted ($)

274

335

433

58.2

29.2

Corporate Services

Number of corporate clients (period end)

OTCQX

442

441

461

4.3

4.5

OTCQB

907

874

902

(0.6)

3.2

Pink

736

722

742

0.8

2.8

Total

2,085

2,037

2,105

1.0

3.3

Revenue per client ($)

3,296

3,357

3,537

7.3

5.4

Graduates to a national securities exchange

18

19

22

22.2

15.8

Market Data Licensing

Market data professional users

22,426

22,926

23,463

4.6

2.3

Market data non-professional users

12,882

20,102

20,673

60.5

2.8

Revenue per terminal (total - $)

176

167

167

(5.3)

0.0

Market data compliance file users

41

44

45

9.8

2.3

Source: OTCM, Edison Investment Research

Turning to regulatory developments, the SEC’s final rule amending Exchange Act Rule 15c2-11 was published in September last year and has a compliance date of 28 September this year. As a reminder, Rule 15c2-11 deals with information requirements before quotes may be published on interdealer quotation systems such as OTC Link ATS. Positively, the amended rule recognises OTCM markets’ disclosure standards and OTC Link ATS is permitted to act as a qualified IDQS (interdealer quotation system) reviewing disclosure to determine whether a security is eligible for public quoting. This will enable it to streamline onboarding of securities to OTCM’s markets, removing the risk and administrative burden of certifying the suitability of securities for quotation from broker dealers, which in turn will allow them to focus on their financial advisory role. OTCM notes that it does not expect the disclosure rules for companies on its OTCQX, OTCQB and Pink Current and Limited Information tiers will change materially. In a further development in December the SEC published a proposed exemptive order that would, subject to approval, allow OTC Link to operate an Expert Market for companies that do not meet the information requirements allowing sophisticated or professional investors to continue to trade in the securities. The group is focused on successful implementation of the amended rule ahead of the compliance deadline.

The initial phase of Consolidated Audit Trail (CAT) obligations for OTC trading began in June 2020 with subsequent obligations taking effect this year, beginning in April. The prospective costs for firms such as OTC Link LLC and other FINRA broker dealer members to fund the database of trading activity have yet to be established and there are also costs involved in building the capability to submit trade reports to meet CAT requirements.

OTCM reported that it filed with the SEC in late 2020 to operate a third ATS alongside OTC Link ATS and OTC Link ECN. The two existing platforms are complementary, with OTC Link ATS providing a network to publish quotes and to facilitate trades between subscribers, while OTC Link ECN operates an anonymous matching engine and acts as an order router, functioning as the execution party on an agency basis. The proposed new ATS, OTC Link NBQ, will provide alternative functionality to broker dealers enabling electronic matching and execution, but with full disclosure rather than anonymity and allowing distribution of full depth of book data rather than top of book alone as at OTC Link ECN. OTCM expects to launch OTC Link NBQ in the first half of 2021.

OTCM continues to work towards increasing regulatory recognition for its markets including the number of states granting Blue Sky recognitions for OTCQX and OTCQB (unchanged at 37 and 33 respectively).

Background and outlook

Our first background table shows recent performance from a selection of equity indices (Exhibit 5). All have shown positive moves over all the periods shown, reflecting the recovery seen in markets as they have reacted to the development of the pandemic and the implementation of countermeasures. The OTCQX and OTCQB indices have shown strength relative to the S&P 500 and Nasdaq indices, perhaps reflecting a rotation towards smaller cap and more economically sensitive sectors; the TSX Venture market has shared in this relative strength.

Exhibit 5: Recent market index performance (total return %)

Period

S&P 500

Nasdaq Composite

OTCQX Composite

OTCQB Venture

S&P TSX Venture

US$

US$

US$

US$

C$

3 months

5.9

3.8

16.6

30.5

22.0

6 months

18.8

22.9

92.5

55.1

33.7

1 year

65.2

86.4

125.4

139.4

182.4

Year to date

4.5

2.7

18.1

22.5

13.8

Source: Bloomberg. Note: Priced on 22 March 2021.

In Exhibit 6 we show the readings from State Street Investor Confidence Index from just before the global financial crisis in 2008/09. This indicator tracks changes in institutional investor holdings of risky versus safer investments. On this measure, the level of confidence bounced following the financial crisis, later peaking in 2015 then declining to a lower level in 2018/19 coinciding with global trade tensions, followed by the pandemic in 2020. Confidence did recover quite sharply following the initial onset of the pandemic and then fluctuated until it was boosted by more encouraging news relating to vaccines that may curtail the impact of COVID-19.

Exhibit 6: State Street Investor Confidence Index

Source: Bloomberg, State Street

The Economic Policy Uncertainty Index shown below is another indicator of the environment for corporate decision-making. The index component selected here reflects daily newspaper coverage related to economic uncertainty and shows the substantial impact of the pandemic compared with the global financial crisis, for instance. Reflecting the nature of its compilation, the index does show a more severe spike with the arrival of the pandemic than the investor confidence index. The index has moved significantly lower, but still remains at a relatively high level in relation to the history shown.

Exhibit 7: US Economic Policy Uncertainty Index (newspaper-based, 5-day rolling average)

Source: 'Measuring Economic Policy Uncertainty' by Scott Baker, Nicholas Bloom and Steven J. Davis at www.PolicyUncertainty.com

Next, we show the trends in numbers of IPOs on the Nasdaq, TSX and TSX Venture exchanges. In the third and fourth quarters of last year the number of IPOs on Nasdaq bounced strongly (Exhibit 8), up 156% and 184% y-o-y respectively. TSX IPOs in 2020 were up 32% by number and 328% by funds raised. The TSX Venture exchange saw a 46% drop in the number of IPOs, but a 134% increase in funds raised. For the first two months of 2021 the pattern for these markets was mixed with IPO numbers down 11% for TSX and up 29% for TSX Venture; in terms of IPO money raised the trends were reversed, with TSX up 134% and TSX Venture down 47%. The Nasdaq data points to a release of pent-up activity following equity market strength and growing anticipation of an easing of the pandemic. On the other hand, the TSX numbers suggest a more varied picture depending on company size and sectoral rotation in markets.

Exhibit 8: Nasdaq – number of IPOs

Exhibit 9: TSX and TSX Venture – number of IPOs

Source: Nasdaq

Source: TMX

Exhibit 8: Nasdaq – number of IPOs

Source: Nasdaq

Exhibit 9: TSX and TSX Venture – number of IPOs

Source: TMX

Looking at the trend in the number of corporate client additions for OTCM itself, Exhibit 10 sets out the figures since Q119 for both OTCQX and OTCQB. This shows the relatively subdued rate of new additions in the first quarter of 2020 as the pandemic took hold with a recovery in the remaining quarters. OTCQX client renewal is at the beginning of the calendar year while for OTCQB client renewal is annual or semi-annual, based on when companies originally signed contracts, and renewals are spread broadly evenly between quarters. Using the figures from the table, the rate of cancellations and downgrades in FY20 expressed as a percentage of opening client numbers was 19.7% for OTCQX and 25.8% for OTCQB, moderately below and above the figures for FY19. Assuming the rates of cancellations and downgrades remain close to the range seen in these years and market conditions allow the H220 improvement in new client additions to be maintained, then prospects for growth in the corporate client base will be good. Certainly, the current year has started well with OTCQX’s annual retention rate up from 92% in January 2020 to 94% for January 2021 and the company reports more broadly that it has continued to see an encouraging trend in terms of new sales and has a strong pipeline of prospects. The group has a particular focus on continued growth in the number of international issuer and community bank clients.

Exhibit 10: Evolution of OTCQX and OTCQB corporate client base

Q119

Q219

Q319

Q419

Q120

Q220

Q320

Q420

OTCQX

Start

409

414

421

436

442

414

415

441

Additions

30

30

31

32

9

19

44

34

Other (cancellations, downgrades)

(25)

(23)

(16)

(26)

(37)

(18)

(18)

(14)

End

414

421

436

442

414

415

441

461

Net change

5

7

15

6

(28)

1

26

20

OTCQB

Start

934

941

916

915

907

893

885

874

Additions

68

38

53

43

28

45

62

94

Other (cancellations, downgrades)

(61)

(63)

(54)

(51)

(42)

(53)

(73)

(66)

End

941

916

915

907

893

885

874

902

Net change

7

(25)

(1)

(8)

(14)

(8)

(11)

28

Source: OTCM, Edison Investment Research. Note: Start, end and additions (new sales) figures are reported while the other figures (cancellations and compliance and other downgrades) are a residual.

For OTC Link the high level of trading seen in FY20 and year to date may not be sustained, but on a longer view OTCM will continue to work on attracting new subscribers and adding additional functionality as exemplified by the proposed launch of OTC Link NQB.

Market Data Licensing is continuing to develop its product offering with a focus on compliance data including the Canari compliance tool and roll out of the Blue Sky compliance secondary trading data product, which was launched in September last year.

OTCM has highlighted its three strategic priorities for 2021 as:

1.

Successful implementation of Amended Rule 15c2-11 including seeking exemptive relief for an Expert Market. OTCM sees the amended rule as a significant shift for the group moving it from being a provider of ATS platforms to being recognised as setting the standard for monitoring the level of disclosure, compliance and governance of OTC companies. The group will devote significant resources to implementation, but the financial impact is not clear yet and will depend on any relief received from the SEC.

2.

Remaining focused on the reliability of trading systems. The group has invested over time in these systems and the level of capital spending is likely to be consistent with that seen in 2020.

3.

Continued support for OTCQX and OTCQB issuers. This will include enabling efficient interaction with shareholders, providing an efficient onboarding process for new clients and maintaining high service levels.

Financials

Headline figures from our revised estimates are shown in Exhibit 11 with further detail in the financial summary (Exhibit 13). For FY21 our revenue estimate is increased by 5% including a 9% increase in the estimate for OTC Link, reflecting the high levels of trading activity that have persisted at the start of the year. We nevertheless allow for some normalisation of activity, assuming a year-on-year decline of 12% in revenue for the division with a further 7% reduction in FY22. For FY21 we expect Corporate Services to contribute the largest increase in revenue, reflecting price increases that come into effect together with the assumption of a better year for net corporate client additions, as mentioned earlier. Our revenue growth assumptions for Market Data Licensing (2% and 3% for FY21 and FY22) are tempered by the thought that moderation in market trading levels could affect subscription levels but may prove conservative. With expense assumptions little changed, our diluted EPS estimate for FY21 increases by 9%.

Exhibit 11: Estimate revisions

 

Gross revenue ($m)

PBT ($m)

Diluted EPS ($)

Dividend ($)

 

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

2020e/a

68.9

71.2

3.3

20.2

21.4

6.1

1.42

1.53

8.4

1.25

1.25

0.0

2021e

70.4

73.6

4.6

21.3

23.1

8.4

1.44

1.57

9.1

1.25

1.25

0.0

2022e

N/A

76.3

N/A

N/A

25.0

N/A

N/A

1.69

N/A

N/A

1.35

N/A

Source: Edison Investment Research. Notes: Dividends include the special dividend of 65c announced for FY20 and estimates of 65c for FY21 and 75c for FY22. FY20 figures show our estimate under old and actual under new.

OTCM’s balance sheet remains strong with no debt and cash of $33.7m or $35.3m including restricted cash. Operating cash flow for FY20 was $26.0m, of which $1.0m was allocated to capital expenditure (IT infrastructure), $14.6m to dividends and $3.5m to purchases of treasury stock. In addition to the cash held, OTCM has an undrawn line of credit of up to $1.5m available.

Valuation

An updated version of our comparative P/E table is shown in Exhibit 12. This includes information providers MSCI and Markit together with the average multiples for global exchanges. OTCM shares are trading on prospective P/Es similar to the average for exchanges and noticeably below those for information providers. To some extent the multiple applied to prospective earnings may be limited by the relative illiquidity of OTCM shares and to exposure to smaller companies through its venture market. Positively, an environment of economic recovery may favour some of the smaller company client base, and the group is financially strong and has a high proportion of subscription-based revenues.

Exhibit 12: OTCM comparative multiples

P/E ratios (x)

2021e

2022e

MSCI

44.4

39.3

Markit

30.0

26.8

Average information providers

37.2

33.0

Average global exchanges

26.0

23.5

OTCM

25.4

23.7

Source: Refinitiv, Edison Investment Research. Note: Prices as at 22 March 2021.

Exhibit 13: Financial summary

$000s

2016

2017

2018

2019

2020

2021e

2022e

Year end 31 December

PROFIT & LOSS

OTC Link

10,573

10,074

11,175

11,676

15,890

13,983

13,004

Market Data Licensing

21,054

21,922

23,384

24,447

28,133

28,696

29,557

Corporate Services

19,254

22,660

24,719

26,716

27,206

30,950

33,697

Revenue

50,881

54,656

59,278

62,839

71,229

73,629

76,258

Re-distribution fees and rebates

(2,317)

(2,480)

(2,448)

(2,489)

(2,810)

(2,870)

(2,956)

Net revenue

48,564

52,176

56,830

60,350

68,419

70,760

73,302

Transaction-based expenses

0

0

(375)

(746)

(3,022)

(2,322)

(1,430)

Revenues less transaction-based expenses

48,564

52,176

56,455

59,604

65,397

68,437

71,871

Operating expenses

(30,032)

(32,511)

(35,768)

(40,230)

(42,202)

(43,615)

(45,091)

EBITDA

18,532

19,665

20,687

19,374

23,195

24,822

26,781

Depreciation

(1,606)

(1,361)

(1,042)

(1,492)

(1,761)

(1,779)

(1,796)

Operating profit

16,926

18,304

19,645

17,882

21,434

23,044

24,984

Net interest

9

47

116

103

(27)

40

40

Profit Before Tax

16,935

18,351

19,761

17,985

21,407

23,084

25,024

Tax

(6,407)

(5,792)

(3,524)

(3,043)

(3,133)

(4,155)

(4,755)

Profit after tax

10,528

12,559

16,237

14,942

18,274

18,929

20,270

Profit after tax and allocation to RSAs

10,252

12,241

15,840

14,588

17,839

18,494

19,835

Average Number of Shares Outstanding (m)

11.3

11.6

11.6

11.7

11.6

11.8

11.8

EPS - basic (c)

92.4

109.9

140.8

128.4

156.4

161.8

173.5

Fully diluted EPS (c)

90.4

105.8

136.3

124.7

153.4

157.2

168.6

Dividend per share (c)

116.0

116.0

123.0

125.0

125.0

125.0

135.0

EBITDA Margin (%)

38

38

36

32

34

35

37

Operating profit margin (%)

35

35

35

30

31

33

34

BALANCE SHEET

Non-current assets

 

 

 

 

 

 

 

Intangible assets

291

362

312

291

291

302

312

Property and other

3,267

3,506

4,584

25,034

22,414

20,369

18,508

Current assets

 

 

 

 

 

 

 

Debtors

6,262

6,450

4,942

5,157

6,609

6,609

6,609

Cash & cash investments

25,034

23,683

28,813

28,217

33,733

43,736

53,138

Other current assets

1,789

2,316

2,998

1,656

1,763

1,763

1,763

Current liabilities

 

 

 

 

 

 

 

Deferred revenues

(14,664)

(15,531)

(16,070)

(15,815)

(18,765)

(21,348)

(23,242)

Other current liabilities

(5,372)

(5,644)

(6,711)

(9,574)

(11,232)

(11,232)

(11,232)

Long-term liabilities

 

 

 

 

 

 

 

Tax, rent and other

(1,101)

(1,351)

(2,459)

(17,293)

(15,267)

(13,912)

(12,557)

Net assets

15,506

13,791

16,409

17,673

19,546

26,287

33,299

NAV per share ($)

1.36

1.21

1.42

1.52

1.67

2.24

2.84

CASH FLOW

Net cash flow from operating activities

15,740

16,483

22,590

21,413

26,013

25,740

26,510

Capital expenditure, intangible investment

(415)

(1,165)

(549)

(5,516)

(1,034)

(1,100)

(1,300)

Dividends

(13,059)

(13,262)

(14,195)

(14,560)

(14,610)

(14,637)

(15,808)

Purchase of treasury stock

(1,714)

(2,176)

(1,047)

(1,390)

(3,520)

0

0

Financing / investments

557

(1,231)

(1,669)

(543)

(1,333)

0

0

Net cash flow

1,109

(1,351)

5,130

(596)

5,516

10,003

9,402

Opening net (debt)/cash

23,925

25,034

23,683

28,813

28,217

33,733

43,736

Closing net (debt)/cash

25,034

23,683

28,813

28,217

33,733

43,736

53,138

Cash and restricted cash

25,244

24,375

30,534

29,778

35,297

45,300

54,702

Source: OTC Markets Group annual reports, Edison Investment Research


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This report has been commissioned by OTC Markets and prepared and issued by Edison, in consideration of a fee payable by OTC Markets. 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.

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Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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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.

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Frankfurt +49 (0)69 78 8076 960

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60325 Frankfurt

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London +44 (0)20 3077 5700

280 High Holborn

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United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

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United States of America

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Level 4, Office 1205

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General disclaimer and copyright

This report has been commissioned by OTC Markets and prepared and issued by Edison, in consideration of a fee payable by OTC Markets. 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 2021 Edison Investment Research Limited (Edison).

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.

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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

1185 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

1185 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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