Numis Corporation — Investing to underpin future growth

Numis Corporation (LSE: NUM)

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GBP3.43

0.00 (0.00%)

Market capitalisation

GBP402m

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Research: Financials

Numis Corporation — Investing to underpin future growth

The timing and size of transactions falling into the second half of FY18 has meant that Numis has achieved a record level of revenue but not reached our earlier estimate for FY18. The decision to undertake a significant investment in additional senior staff has also affected earnings, but is set to underpin the franchise and could help generate positive earnings surprises in future years. The deal pipeline is described as very strong so, subject to market conditions, we look for a rebound in earnings for FY19.

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Financials

Numis Corporation

Investing to underpin future growth

FY18 trading update

Financial services

28 September 2018

Price

374.0p

Market cap

£402m

Net cash (£m) at 31 March 2018

82.5

Shares in issue

107.4m

Free float

89%

Code

NUM

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(10.2)

(8.5)

33.6

Rel (local)

(9.7)

(7.3)

29.3

52-week high/low

440.0p

277.8p

Business description

Numis is one of the UK's leading independent corporate advisory and stockbroking groups, offering a full range of research, execution, equity capital markets, corporate broking and advisory services. It employs c 270 staff in offices in London and New York, and at the end of March 2018 had 208 corporate clients.

Next events

FY18 results

5 December 2018

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

The timing and size of transactions falling into the second half of FY18 has meant that Numis has achieved a record level of revenue but not reached our earlier estimate for FY18. The decision to undertake a significant investment in additional senior staff has also affected earnings, but is set to underpin the franchise and could help generate positive earnings surprises in future years. The deal pipeline is described as very strong so, subject to market conditions, we look for a rebound in earnings for FY19.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/16

112.3

32.5

22.4

12.0

16.7

3.2

09/17

130.1

38.3

25.9

12.0

14.4

3.2

09/18e

133.7

27.9

19.8

12.0

18.9

3.2

09/19e

147.7

36.3

25.8

12.0

14.5

3.2

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

FY18 trading update

Numis indicates that full year revenue for FY18 was approximately 3% ahead of FY17. While activity levels were strong in the second half, the timing of transactions for corporate broking and advisory, and lower average values on those completed in the period meant that second half revenues were lower than we had estimated. In H218 the equities business broadly matched its first half performance and, encouragingly, MiFID II does not appear to have had an adverse impact on the business, reflecting the strength and breadth of the service offered to institutional clients. The other area highlighted by the group is an ‘unprecedented period’ of senior staff hiring. The overall headcount has increased by 16% and the impact on costs is magnified by the need to match incentive packages at previous employers.

Pipeline strong and capabilities strengthened

Looking ahead, the fluctuation in the incidence and size of deals that affected H218 is a normal feature in markets and the group points to a very strong near-term pipeline which, paired with the momentum in the equities business, should help provide a good start to FY19 and support the near-term market share gain that management looks for. On a longer view, the investment in senior staff should contribute to a broadening and deepening of the group’s capabilities and hence enhance potential earnings through market cycles.

Valuation: Potential for earnings rebound in FY19e

Reflecting the combination of a lower revenue expectation and higher assumed costs, our FY18 EPS estimate is now 24% lower but, given the indication of a very strong pipeline, the reduction is a more modest 5% for FY19. As a result, while the multiple for FY18e looks high relative to previous assumptions, on our estimates earnings are set to rebound strongly in FY19e, reducing the following year multiple with the potential for enhanced growth thereafter as the investment in staff generates income.

Estimate revisions

We show changes in key numbers from our estimates below and further detail on the estimates is shown in the financial summary.

Within the revenue estimate, the main reduction is in corporate broking and advisory. As noted, this reflects the timing and size of transactions that completed in H218 and FY18 revenues will be ahead of the prior year. Equities revenue is also indicated to be ahead of FY18. Management reports a very strong pipeline of transactions and we assume that a number of these will have fallen into the early part of FY19 rather than FY18, potentially providing a very strong start to the year for corporate broking and advisory.

On costs, we have assumed that the 16% increase in headcount, allowing for phasing of hiring, gives rise to an increase in total staff costs of c 11% with a more moderate increase for FY19e.

The overall outcome is a 24% reduction in earnings estimate for FY18 and a 5% reduction for FY19, a number which is subject to normal market uncertainties. As noted above, the investment in senior staff should strengthen the Numis franchise, increasing the potential for future growth and the firm’s value on a long view.

Exhibit 1: Estimate revisions

Revenue (£m)

PBT (£m)

EPS (p)

DPS (p)

Old

New

Change

Old

New

Change

Old

New

Change

Old

New

Change

09/18e

144.5

133.7

-7.5%

37.8

27.9

-26.1%

26.2

19.8

-24.4%

12.0

12.0

0.0%

09/19e

147.7

147.7

0.0%

38.6

36.3

-5.8%

27.3

25.8

-5.4%

12.0

12.0

0.0%

Source: Edison Investment Research


Exhibit 2: Financial summary

£'000s

2015

2016

2017

2018e

2019e

Year end 30 September

PROFIT & LOSS

Revenue

 

 

97,985

112,335

130,095

133,704

147,670

Administrative expenses (excl. amortisation and depreciation)

(65,018)

(76,120)

(83,626)

(92,631)

(100,673)

Share based payment

(4,104)

(6,229)

(10,454)

(12,500)

(10,000)

EBITDA

 

 

28,863

29,986

36,015

28,573

36,997

Depreciation

 

 

(882)

(1,126)

(1,226)

(1,200)

(1,200)

Amortisation

(111)

(125)

(89)

(35)

(20)

Operating Profit (before amort. and except).

 

 

27,870

28,735

34,700

27,338

35,777

Net finance income

190

37

188

50

60

Other operating income

(1,978)

3,759

3,431

500

500

Profit before tax

 

 

26,082

32,531

38,319

27,888

36,337

Tax

(4,533)

(6,132)

(7,942)

(5,195)

(7,193)

Profit after tax (FRS 3)

 

 

21,549

26,399

30,377

22,693

29,144

Average diluted number of shares outstanding (m)

117.6

118.0

117.2

114.7

113.0

EPS - basic (p)

19.5

23.5

27.4

21.3

27.8

EPS - diluted (p)

 

 

18.3

22.4

25.9

19.8

25.8

Dividend per share (p)

11.50

12.00

12.00

12.00

12.00

NAV per share (p)

102.0

113.5

125.0

127.6

137.4

ROE (%)

19%

22%

23%

17%

21.0%

EBITDA margin (%)

29.5%

26.7%

27.7%

21.4%

25.1%

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

28.4%

25.6%

26.7%

20.4%

24.2%

BALANCE SHEET

Fixed assets

 

 

6,724

5,522

6,147

7,188

6,658

Current assets

 

 

279,114

312,462

407,850

359,152

367,047

Total assets

 

 

285,838

317,984

413,997

366,340

373,705

Current liabilities

 

 

(170,319)

(188,895)

(280,371)

(231,146)

(231,146)

Long term liabilities

0

(12)

0

(11)

(11)

Net assets

 

 

115,519

129,077

133,626

135,183

142,548

CASH FLOW

Operating cash flow

 

 

6,467

48,735

43,369

30,519

35,054

Net cash from investing activities

(3,632)

84

(198)

(990)

(380)

Net cash from (used in) financing

(17,510)

(19,580)

(36,359)

(34,737)

(31,779)

Net cash flow

 

 

(14,675)

29,239

6,812

(5,208)

2,895

Opening net (cash)/debt

 

 

(74,518)

(59,591)

(89,002)

(95,852)

(90,452)

FX effect

 

 

(252)

172

38

(192)

0

Closing net (cash)/debt

 

 

(59,591)

(89,002)

(95,852)

(90,452)

(93,347)

Source: Edison Investment Research, Numis Corporation accounts

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Numis Corporation and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Numis Corporation and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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