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Lighthouse Group 11 January 2019 Update
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Lighthouse Group

On course

Year-end trading update

Financial services

11 January 2019

Price

24.9p

Market cap

£32m

Net cash (£m) at end-June 2018

9.6

Shares in issue

127.7m

Free float (not in public hands per AIM rule 26, 31 October 2018)

50%

Code

LGT

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.0

(21.7)

25.8

Rel (local)

(3.5)

(19.2)

40.6

52-week high/low

38.7p

19.5p

Business description

Lighthouse comprises a diverse group of UK financial advice firms serving individuals and businesses. The main focus is on Middle Britain and contracts with 21 affinity groups are an important revenue and profit contributor. Wealth Advisory serves a high net worth client base, while Luceo Asset Management provides an in-house fund offering.

Next event

FY18 results

February 2019

Analysts

Andrew Mitchell

+44 (0)20 3681 2500

Martyn King

+44 (0)20 3077 5745

Lighthouse Group is a research client of Edison Investment Research Limited

Lighthouse has confirmed that it is on course to meet board expectations for EBITDA and pre-tax profit for 2018, continuing the progress it made during the first half of the year. The potential to achieve good long-term growth through meeting the need for financial advice, particularly in the affinity business, remains in place.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/16

47.9

1.9

1.13

0.27

22.0

1.1

12/17

54.1

2.5

1.49

0.42

16.8

1.7

12/18e

55.7

2.8

1.61

0.60

15.5

2.4

12/19e

57.5

3.1

1.81

0.70

13.8

2.8

Note: *EPS are normalised and fully diluted, with tax credits excluded and a standard tax charge applied.

Profits meeting expectations

In its year-end trading update, Lighthouse confirmed that it expects to report EBITDA and profit before tax in line with board expectations. Revenue production per adviser and recurring revenue (over 50% of customer-derived revenue) have continued to increase. Our forecasts are unchanged with 2018 pre-tax profit and EPS expected to increase by 9.5% y-o-y and 8% y-o-y, respectively. Reflecting a strong balance sheet, the interim dividend was stepped up from 0.12p to 0.20p and we are assuming 0.60p for the full year. During the second half, Lighthouse announced a new affinity contract following the merger of two teaching unions (ATL and NUT) to form the National Education Union. While Lighthouse was already preferred supplier of financial advice to the ATL, the NUT added a further 336,000 members and the contract underlined the group’s strong position with affinity groups. A strategic agreement with Tavistock Investments was also reached, which will broaden the Luceo Asset Management product offering and help increase its scale.

Long-term outlook remains appealing

A more volatile market background could have some effect on individuals’ propensity to seek financial advice (both positive and negative), but the key longer-term drivers of demand growth remain in place: an ageing population, and increased choices and responsibility for pension accumulation and decumulation. Lighthouse appears well-placed to address this opportunity with a particular focus on developing business through its affinity relationships.

Valuation: Substantial upside

Lighthouse shares are up by over 25% on a 12-month view, but have corrected by a similar amount since their mid-2018 high. On unchanged estimates, our DCF valuation also remains unchanged at 44p, suggesting substantial potential upside from the current price.

Exhibit 1: Financial summary

Year-end 31 December (£000s)

2015

2016

2017

2018e

2019e

2020e

Profit and loss

National

16,074

15,717

19,840

21,368

23,184

24,923

Communities

23,978

23,780

24,452

23,181

22,181

21,935

Wealth Advisory

8,829

8,422

9,652

10,714

11,410

11,867

Other segments

0

0

166

409

731

1,013

Total revenue

48,881

47,919

54,111

55,672

57,506

59,736

Cost of sales

(34,057)

(33,452)

(39,439)

(40,625)

(41,551)

(42,866)

Gross profit

14,824

14,467

14,672

15,046

15,955

16,870

Underlying expenses

(13,214)

(12,180)

(11,485)

(11,530)

(12,146)

(12,669)

Underlying EBITDA

1,610

2,287

3,187

3,516

3,809

4,201

Share based payment

0

(79)

(385)

(385)

(385)

(385)

EBITDA

1,610

2,208

2,802

3,131

3,424

3,816

Depreciation and amortisation

(552)

(299)

(274)

(352)

(334)

(326)

Operating profit

1,058

1,909

2,528

2,779

3,091

3,489

Finance income

14

11

3

14

15

20

Finance costs

(206)

(27)

(10)

(32)

0

0

Profit before taxation

866

1,893

2,521

2,761

3,106

3,509

Taxation

0

750

200

0

(590)

(667)

Non-controlling interest

0

0

0

0

0

0

Earnings

866

2,643

2,721

2,761

2,516

2,843

Adjusted earnings

866

1,514

2,036

2,236

2,516

2,843

Basic EPS (p)

0.68

2.07

2.13

2.16

1.97

2.23

Dil EPS (p)

0.68

1.97

1.98

1.98

1.81

2.04

Adjusted EPS (p)

0.68

1.19

1.59

1.75

1.97

2.23

Dil adjusted EPS (p)

0.68

1.13

1.49

1.61

1.81

2.04

Dividends (p)

0.24

0.27

0.42

0.60

0.70

0.77

Dividend cover - dil adjusted EPS (x)

2.8

4.2

3.5

2.7

2.6

2.6

EBITDA margin (%)

3.3

4.6

5.2

5.6

6.0

6.4

Return on equity - adj earnings (%)

13.8

19.5

19.7

17.3

16.5

16.0

Balance sheet

Non-current assets

6,555

7,220

7,478

7,594

7,610

7,583

Intangible assets

5,284

5,230

5,131

5,231

5,229

5,205

Property, plant & equipment

1,271

1,240

1,397

1,412

1,431

1,428

Available for sale investment

0

0

0

0

0

0

Deferred tax asset

0

750

950

950

950

950

Current assets

21,655

17,505

16,920

17,601

19,579

22,667

Trade and other receivables

13,266

9,004

8,187

8,423

9,051

9,602

Cash and cash equivalents

8,389

8,501

8,733

9,178

10,529

13,066

Total assets

28,210

24,725

24,398

25,194

27,189

30,251

Current liabilities

17,254

12,307

11,635

10,150

10,148

10,276

Borrowings

34

34

0

0

0

0

Trade and other payables

10,629

9,268

8,789

8,450

8,448

8,576

Provisions

6,591

3,005

2,846

1,700

1,700

1,700

Non-current liabilities

4,395

3,454

1,076

850

750

750

Borrowings

439

405

0

0

0

0

Provisions

3,956

3,049

1,076

850

750

750

Total liabilities

21,649

15,761

12,711

11,000

10,898

11,026

Net assets

6,561

8,964

11,687

14,194

16,291

19,224

Cash flow

Operating profit

1,058

1,909

2,528

2,779

3,091

3,489

Depreciation and amortisation

552

299

274

352

334

326

Share-based payments

0

79

385

385

385

385

Change in receivables, payables

(2,415)

2,901

338

(575)

(629)

(423)

Change in provisions

2,270

(4,493)

(2,132)

(1,372)

(100)

0

Finance costs paid

(404)

(27)

(10)

(32)

0

0

Income taxes refunded/paid

0

0

0

0

(590)

(667)

Net cash flow from operating activities

1,061

668

1,383

1,537

2,490

3,111

Purchase of PPE

(119)

(126)

(307)

(243)

(200)

(180)

Purchase of intangibles

(69)

(88)

(25)

(225)

(150)

(120)

Finance income received

14

11

3

14

15

20

Net cash flow from investing activities

(174)

(203)

(329)

(454)

(335)

(280)

Dividends paid

(255)

(319)

(383)

(638)

(805)

(294)

Change in loans

(1,307)

(34)

(439)

0

0

0

Net cash flow from financing activities

(1,562)

(353)

(822)

(638)

(805)

(294)

Change in cash

(675)

112

232

445

1,351

2,537

Change in loans/other

1,505

34

439

0

0

0

Change in net cash

830

146

671

445

1,351

2,537

Closing net cash

7,916

8,062

8,733

9,178

10,529

13,066

Source: Lighthouse Group, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Lighthouse Group and prepared and issued by Edison, in consideration of a fee payable by Lighthouse Group. 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 Edison analyst 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 Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

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

General disclaimer and copyright

This report has been commissioned by Lighthouse Group and prepared and issued by Edison, in consideration of a fee payable by Lighthouse Group. 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 Edison analyst 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 Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

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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