Tough H1 background but strong market share gains

Numis Corporation 2 April 2019 Update
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Numis Corporation

Tough H1 background but strong market share gains

H119 trading update

Financial services

2 April 2019

Price

250p

Market cap

£266m

Net cash (£m) at end September 2018

111.7

Shares in issue

106.0m

Free float

75%

Code

NUM

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.3)

7.5

(29.5)

Rel (local)

(6.4)

(1.2)

(31.3)

52-week high/low

440.0p

221.5p

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 over 270 staff in offices in London and New York, and at the end of September 2018 had 210 corporate clients.

September 2018 had 210 corporate clients.

Next events

H219 results

3 May 2019

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

As would be expected, Numis’s first-half trading has been affected by the uncertain UK political background, but it has seen a pick-up in corporate transactions in March and the pipeline of potential deals has also increased. This should provide an encouraging starting point once greater certainty and business confidence return. On this basis, we still look for a stronger second half but have reduced our estimates to reflect conditions in the first half.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/16

112.3

32.5

22.4

12.0

11.2

4.8

09/17

130.1

38.3

25.9

12.0

9.6

4.8

09/18

136.0

31.6

23.0

12.0

10.9

4.8

09/19e

119.7

22.3

15.8

12.0

15.8

4.8

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

H119 trading update

The weak equity market in the last quarter of calendar 2018 and the political difficulties over Brexit in the first quarter of the current year cast a pall over capital market activity during H119. Numis reports that this has resulted in a 26% reduction in revenues compared with the strong H118 performance: this is equivalent to an 11% sequential reduction compared with H218. Positively, against a much reduced level of transactions in the market, Numis has gained market share and benefited from higher average deal fees. It has also seen a pick-up in transactions in March, including deals for Just Group and Randall & Quilter, and the merger of Primary Health Properties and MedicX, which provided a strong end to the period.

Adjusting our estimate

Divisionally, Numis signals that corporate broking and advisory revenues for the first half matched H218, slightly ahead of our estimate. As a result, we have maintained our full year estimate here on the basis that the recent improved momentum is broadly maintained. For equities, continued depressed activity and the marginally loss-making period for market-making reported at the time of the AGM in February warrants a reduction in estimate. At the group level, this results in a 4% reduction in estimated revenue and a 12% reduction at the earnings per share level. Clearly there is scope for substantial variation from this estimate in both directions subject to the development of corporate and market confidence.

Valuation: Still reasonable given longer-term returns

The uncertain near-term outlook and lack of immediately comparable prospective peer P/Es make standard earnings multiple comparisons difficult. However, using an ROE/COE model to infer the ROE which the current share price assumes indicates a figure of c 15%. While this is above our current year estimate (c 13%), it is well below the five-year historical average of c 20%, which appears conservative given the strength of the Numis franchise.

Estimate changes

The changes in headline numbers for our FY19 estimates, as discussed above, are set out in Exhibit 1.

Exhibit 1: Estimate revisions

Revenue (£m)

PBT (£m)

EPS (p)

DPS (p)

Old

New

Change

Old

New

Change

Old

New

Change

Old

New

Change

09/19e

124.9

119.7

-4.2%

25.4

22.3

-12.2%

18.0

15.8

-12.2%

12.0

12.0

0.0%

Source: Edison Investment Research

Beyond the revenue changes shown in Exhibit 2, we have assumed a small reduction in the percentage of variable remuneration of pre-bonus profit providing some mitigation of the operational leverage evident in the profit and EPS reduction. The increase in cost/income ratio is limited to a move from 79% to 81%. The group’s investment in staff to support its longer-term growth (see our January note) has a negative impact on near-term profits but should support longer-term growth, and the relative resilience of the Corporate Broking and Advisory division is an encouraging indicator of the strength of the franchise as it stands.

Exhibit 2: Revenue analysis

£000s

2018

2019e

Change

Old 2019e

New vs old

Net trading gains

9,594

3,500

-64%

7,900

-56%

Institutional commissions

37,866

35,000

-8%

35,800

-2%

Equities

47,460

38,500

-19%

43,700

-12%

Corporate retainers

12,430

13,000

5%

13,000

0%

Advisory fees

17,335

17,200

-1%

17,200

0%

Placing commissions/capital markets

58,822

51,000

-13%

51,000

0%

Corporate broking and advisory

88,587

81,200

-8%

81,200

0%

Total revenue

136,047

119,700

-12%

124,900

-4%

Source: Edison Investment Research

Valuation

For reference, we have updated the comparative valuation table that we have included in previous notes (Exhibit 3). The absence of published estimates for UK peers and the particularly uncertain background limits the usefulness of P/E comparisons currently. Numis offers a higher yield than the averages for the UK or US/European comparators shown. It trades on a higher price to book ratio than the UK peers but also has a higher return on equity. On our revised estimates, the prospective return on equity would be c 13%, but the five-year historical average has been 20%. At a share price of 250p, an ROE/COE model suggests the market is discounting a return of c 15%: above our current year estimate but still conservative in the context of historical returns and the potential for significant improvement in a more favourable environment.

Exhibit 3: Peer comparison

Price
(local)

Market cap
(£m)

Last reported
P/E (x)

Current P/E
(x)

Yield
(%)

ROE
(%)

Price to book
(x)

UK brokers

Numis

250

266

10.9

16.8

4.8

19.3

1.9

Arden Partners

26

8

Loss

N/A

0.0

N/A

0.8

Cenkos

69

38

16.3

N/A

6.6

25.3

1.4

Shore Capital

220

47

17.6

N/A

4.5

4.8

0.8

WH Ireland

39

17

Loss

N/A

0.0

N/A

1.1

UK average

14.9

N/A

3.2

16.5

1.2

US, European IB and advisory

Bank of America

27.6

265,939

10.5

9.6

2.0

10.5

1.0

Evercore

91.0

4,366

10.1

11.4

2.1

69.7

4.8

Goldman Sachs

192.0

70,415

7.6

8.1

1.6

12.3

0.9

Greenhill

21.5

445

N/A

N/A

0.9

29.7

7.0

JP Morgan

101.2

331,451

11.2

10.4

2.4

13.0

1.3

Moelis

41.6

2,332

13.9

13.9

4.5

60.4

5.8

Morgan Stanley

42.2

72,111

8.9

8.7

2.6

11.8

1.0

Stifel Financial

52.8

3,792

10.0

9.4

0.9

14.2

1.2

Credit Suisse

11.6

30,532

10.7

8.5

2.3

NULL

0.7

Deutsche Bank

7.3

15,009

16.6

12.2

1.5

NULL

0.2

UBS

12.1

47,697

9.6

9.3

5.8

5.3

0.9

US, European IB and advisory average

10.9

10.1

2.4

25.2

2.3

Source: Refinitiv. Note: Priced at 1 April 2019, P/Es are for financial years therefore not all same period end.


Exhibit 4: Financial summary

£'000s

2015

2016

2017

2018

2019e

Year end 30 September

PROFIT & LOSS

Revenue

 

 

97,985

112,335

130,095

136,047

119,700

Administrative expenses (excl. amortisation and depreciation)

(65,018)

(76,120)

(83,626)

(94,603)

(86,248)

Share based payment

(4,104)

(6,229)

(10,454)

(10,583)

(10,600)

EBITDA

 

 

28,863

29,986

36,015

30,861

22,852

Depreciation

 

 

(882)

(1,126)

(1,226)

(1,113)

(1,200)

Amortisation

(111)

(125)

(89)

(49)

(50)

Operating Profit (before amort. and except).

 

 

27,870

28,735

34,700

29,699

21,602

Net finance income

190

37

188

212

210

Other operating income

(1,978)

3,759

3,431

1,733

500

Profit before tax

 

 

26,082

32,531

38,319

31,644

22,312

Tax

(4,533)

(6,132)

(7,942)

(4,967)

(4,239)

Profit after tax (FRS 3)

 

 

21,549

26,399

30,377

26,677

18,073

Average diluted number of shares outstanding (m)

117.6

118.0

117.2

115.8

114.1

EPS - basic (p)

19.5

23.5

27.4

25.1

17.3

EPS - diluted (p)

 

 

18.3

22.4

25.9

23.0

15.8

Dividend per share (p)

11.50

12.00

12.00

12.00

12.00

NAV per share (p)

102.0

113.5

125.0

135.0

136.4

ROE (%)

19%

22%

23%

19%

12.7%

EBITDA margin (%)

29.5%

26.7%

27.7%

22.7%

19.1%

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

28.4%

25.6%

26.7%

21.8%

18.0%

BALANCE SHEET

Fixed assets

 

 

6,724

5,522

6,147

8,215

7,565

Current assets

 

 

279,114

312,462

407,850

533,033

531,673

Total assets

 

 

285,838

317,984

413,997

541,248

539,238

Current liabilities

 

 

(170,319)

(188,895)

(280,371)

(398,112)

(398,112)

Long term liabilities

0

(12)

0

0

0

Net assets

 

 

115,519

129,077

133,626

143,136

141,126

CASH FLOW

Operating cash flow

 

 

6,467

48,735

43,369

45,830

24,533

Net cash from investing activities

(3,632)

84

(198)

(1,014)

(210)

Net cash from (used in) financing

(17,510)

(19,580)

(36,359)

(29,035)

(30,682)

Net cash flow

 

 

(14,675)

29,239

6,812

15,781

(6,360)

Opening net (cash)/debt

 

 

(74,518)

(59,591)

(89,002)

(95,852)

(111,673)

FX effect

 

 

(252)

172

38

40

0

Closing net (cash)/debt

 

 

(59,591)

(89,002)

(95,852)

(111,673)

(105,313)

Source: Company data, Edison Investment Research


General disclaimer and copyright

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

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 Corporation and prepared and issued by Edison, in consideration of a fee payable by Numis Corporation. 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

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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