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Research: Financials
A favourable market background has contributed to a record performance for Numis in its first half that also confirms the strength of the franchise it has built across its investment banking and equities businesses. Recent activity has been focused on areas benefiting from the acceleration of secular trends prompted by the pandemic. Numis’s exposure to clients in these areas, including through its private markets activities, is valuable currently but should also prove a long-term strength.
Written by
Numis |
A further very strong period |
H121 trading update |
Financial services |
30 March 2021 |
Share price performance
Business description
Next events
Analysts
Numis is a research client of Edison Investment Research Limited |
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A favourable market background has contributed to a record performance for Numis in its first half that also confirms the strength of the franchise it has built across its investment banking and equities businesses. Recent activity has been focused on areas benefiting from the acceleration of secular trends prompted by the pandemic. Numis’s exposure to clients in these areas, including through its private markets activities, is valuable currently but should also prove a long-term strength.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/18 |
136.0 |
31.6 |
23.0 |
12.0 |
16.8 |
3.1 |
09/19 |
111.6 |
12.4 |
8.1 |
12.0 |
47.5 |
3.1 |
09/20 |
154.9 |
37.1 |
26.7 |
12.0 |
14.4 |
3.1 |
09/21e |
185.0 |
52.4 |
36.7 |
12.0 |
10.5 |
3.1 |
Note: *PBT and EPS are on a reported basis and EPS is fully diluted.
High activity levels continued through H121
Following the positive update on the first four months of FY21 (4M21), Numis’s update for H121 (to end March) reported continued very strong trading across the group. The year-on-year revenue growth guidance for the first half outpaces the 50% growth indicated for 4M21, with a 75% increase to c £110m expected. Investment Banking revenue is expected to be ahead of the high level achieved in H220, with increased IPO and M&A activity more than offsetting the tailing-off of COVID-19-related fund-raising for clients. Activity has tended to focus on those areas benefiting from changes accelerated by the pandemic evidencing Numis’s credibility in the digital economy. Equities is also expected to generate revenue ahead of H220, helped by increased market share, activity levels and strong gains on the trading book. Looking ahead, the Investment Banking pipeline is reported to be encouraging with further IPO and M&A activity in prospect, while the private markets business has leading technology disrupters as clients, which also bodes well for future activity.
A corresponding increase in estimates
Reflecting the first half revenue guidance, we have increased our FY21 revenue forecast by 14% to £185m cautiously assuming a normalisation of activity at some point in the second half (revenue assumed of c £75m). The outcome could be higher if current activity levels are maintained but the potential upside must be balanced against the considerable uncertainties surrounding the market and economic background. Operational gearing means that our FY21 pre-tax profit estimate is increased by 40% to £52.4m.
Valuation
The shares trade on a price to book value of 2.6x, above the 10-year average of 2.0x and, based on an ROE/COE model, the share price would be consistent with an assumed return on equity (ROE) of 19.5%, just above the historical five-year average of 18% but below our estimate for FY21 of 25%.
Selected transactions
As an indication of the range of transactions that contributed to the first half performance, Exhibit 1 shows selected transactions that Numis was involved in during H121.
Exhibit 1: Numis – selected transactions H121
Company |
Date |
Role |
Transaction |
Money raised/ value (£m) |
Cazoo |
Oct-20 |
Joint placement agent |
Private fund raise |
240 |
Draper Esprit |
Oct-20 |
Nominated advisor, joint global coordinator, bookrunner and broker |
Placing |
110 |
Aquila Capital |
Oct-20 |
Broker, adviser and joint bookrunner |
Placing |
116 |
Merian Global Investors |
Oct-20 |
Joint bookrunner |
IPO |
95 |
Synairgen |
Oct-20 |
Joint broker and bookrunner |
Placing and open offer |
87 |
Victoria |
Oct-20 |
Debt adviser |
Preferred equity investment |
175 |
Aveva |
Oct-20 |
Joint global coordinator, bookrunner and broker; sole sponsor |
Rights issue to finance acquisition |
2,800 |
Waterfall Asset Management |
Nov-20 |
Financial adviser |
M&A |
639 |
Future |
Nov-20 |
Sponsor, joint financial adviser and broker |
M&A |
594 |
Pets at Home |
Nov-20 |
Sole financial adviser |
M&A |
100 |
Electrocomponents |
Dec-20 |
Joint broker and bookrunner |
Placing |
180 |
Bytes Technology |
Dec-20 |
Sole sponsor, financial and debt adviser, global coordinator and bookrunner |
IPO |
647 |
AJ Bell |
Dec-20 |
Sole broker |
Block trade |
25 |
Clipper Logistics |
Jan-21 |
Joint bookrunner |
Block trade |
62 |
Bambuser |
Jan-21 |
Joint global coordinator and bookrunner |
Placing |
52 |
VH Global Sustainable Energy Opportunities |
Jan-21 |
Sponsor and sole bookrunner |
IPO |
243 |
HSS Hire |
Jan-21 |
Sponsor and nominated adviser |
Placing and open offer |
53 |
Scapa |
Jan-21 |
Joint corporate broker and nominated adviser |
M&A |
403 |
Moonpig |
Jan-21 |
Joint bookrunner |
IPO |
1,197 |
Foresight |
Feb-21 |
Sole sponsor, joint global coordinator and bookrunner |
IPO |
455 |
Knights |
Feb-21 |
Sole bookrunner |
Block trade |
62 |
Polypipe |
Feb-21 |
Joint bookrunner and corporate broker |
Placing |
96 |
Future |
Feb-21 |
Sole sponsor and joint adviser and broker |
M&A |
594 |
Hargreaves Lansdown |
Feb-21 |
Joint global coordinator and bookrunner |
Placing |
300 |
Auto1 |
Feb-21 |
Bookrunner |
IPO |
6,690 |
Auction Technology |
Feb-21 |
Sole sponsor and joint global coordinator and bookrunner |
IPO |
600 |
Cazoo |
Feb-21 |
Sole financial adviser |
M&A |
N/A |
Source: Numis, Edison Investment Research
Financials
Exhibit 2 shows an analysis of our revenue assumptions for FY21 with prior year comparatives. We have not provided an updated scenario analysis at this stage, but the considerable uncertainty over revenues in any particular period should be borne in mind when viewing the estimates. An indication of the sensitivity of profitability to changes in revenue can be seen in the scenario analysis included in our December 2020 note.
Exhibit 2: Revenue analysis
£000s |
2018 |
2019 |
2020 |
2021e |
Net trading gains |
9,594 |
4,008 |
16,003 |
14,000 |
Institutional income |
37,866 |
33,317 |
37,192 |
36,500 |
Equities |
47,460 |
37,325 |
53,195 |
50,500 |
Corporate retainers |
12,430 |
13,357 |
13,536 |
12,000 |
Advisory |
17,335 |
12,576 |
11,146 |
18,000 |
Capital markets |
58,822 |
48,352 |
77,022 |
104,500 |
Investment banking |
88,587 |
74,285 |
101,704 |
134,500 |
Total revenue |
136,047 |
111,610 |
154,899 |
185,000 |
Source: Edison Investment Research
Changes in the key numbers from our forecasts are shown below, with further detail from the new forecast given in the financial summary table (Exhibit 5).
Exhibit 3: Estimate changes
Revenue (£m) |
PBT (£m) |
Fully diluted EPS (p) |
DPS (p) |
|||||||||
Old |
New |
Change |
Old |
New |
Change |
Old |
New |
Change |
Old |
New |
Change |
|
09/21e |
162.0 |
185.0 |
14.2% |
37.3 |
52.4 |
40.4% |
26.1 |
36.7 |
40.4% |
12.0 |
12.0 |
0.0% |
Source: Edison Investment Research
Valuation
The chart below shows a 10-year history of the price to book ratio for Numis. The current value is 2.6x, above the 10-year average of 2.0x. Using an ROE/COE model to infer the ROE required to match the current share price (386p) gives a value of 19.5%. This is above the five-year historical average of 18%, but below our estimate for the current year of 25%.
|
Exhibit 4: 10-year history of the price to book value ratio for Numis |
|
|
Source: Refinitiv, Edison Investment Research |
Exhibit 5: Financial summary
£000s |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021e |
|||
Year end 30 September |
||||||||||
PROFIT & LOSS |
||||||||||
Revenue |
|
|
97,985 |
112,335 |
130,095 |
136,047 |
111,610 |
154,899 |
185,000 |
|
Administrative expenses (excl. amortisation and depreciation) |
(65,018) |
(76,120) |
(83,626) |
(94,603) |
(85,432) |
(105,327) |
(118,690) |
|||
Share based payment |
(4,104) |
(6,229) |
(10,454) |
(10,583) |
(10,914) |
(9,961) |
(9,000) |
|||
EBITDA |
|
|
28,863 |
29,986 |
36,015 |
30,861 |
15,264 |
39,611 |
57,310 |
|
Depreciation |
|
|
(882) |
(1,126) |
(1,226) |
(1,113) |
(1,124) |
(3,016) |
(5,293) |
|
Amortisation |
(111) |
(125) |
(89) |
(49) |
(44) |
(105) |
(110) |
|||
Operating Profit |
|
|
27,870 |
28,735 |
34,700 |
29,699 |
14,096 |
36,490 |
51,907 |
|
Net finance income |
190 |
37 |
188 |
212 |
550 |
263 |
470 |
|||
Other operating income |
(1,978) |
3,759 |
3,431 |
1,733 |
(2,210) |
310 |
0 |
|||
Profit before tax |
|
|
26,082 |
32,531 |
38,319 |
31,644 |
12,436 |
37,063 |
52,377 |
|
Tax |
(4,533) |
(6,132) |
(7,942) |
(4,967) |
(3,110) |
(5,713) |
(9,952) |
|||
Profit after tax (FRS 3) |
|
|
21,549 |
26,399 |
30,377 |
26,677 |
9,326 |
31,350 |
42,425 |
|
Average diluted number of shares outstanding (m) |
117.6 |
118.0 |
117.2 |
115.8 |
114.9 |
117.3 |
115.6 |
|||
EPS - basic (p) |
19.5 |
23.5 |
27.4 |
25.1 |
8.8 |
29.9 |
40.0 |
|||
EPS - diluted (p) |
|
|
18.3 |
22.4 |
25.9 |
23.0 |
8.1 |
26.7 |
36.7 |
|
Dividend per share (p) |
11.50 |
12.00 |
12.00 |
12.00 |
12.00 |
12.00 |
12.00 |
|||
NAV per share (p) |
102.0 |
113.5 |
125.0 |
135.0 |
131.3 |
149.8 |
161.8 |
|||
ROE (%) |
19% |
22% |
23% |
19% |
6.6% |
21.2% |
25.1% |
|||
EBITDA margin (%) |
29.5% |
26.7% |
27.7% |
22.7% |
13.7% |
25.6% |
31.0% |
|||
Operating margin (%) |
28.4% |
25.6% |
26.7% |
21.8% |
12.6% |
23.6% |
28.1% |
|||
BALANCE SHEET |
||||||||||
Fixed assets |
|
|
6,724 |
5,522 |
6,147 |
8,215 |
6,832 |
12,639 |
43,986 |
|
Current assets |
|
|
279,114 |
312,462 |
407,850 |
533,033 |
326,641 |
509,034 |
526,630 |
|
Total assets |
|
|
285,838 |
317,984 |
413,997 |
541,248 |
333,473 |
521,673 |
570,616 |
|
Current liabilities |
|
|
(170,319) |
(188,895) |
(280,371) |
(398,112) |
(195,319) |
(361,397) |
(362,747) |
|
Long term liabilities |
0 |
(12) |
0 |
0 |
0 |
(2,643) |
(27,523) |
|||
Net assets |
|
|
115,519 |
129,077 |
133,626 |
143,136 |
138,154 |
157,633 |
180,346 |
|
CASH FLOW |
||||||||||
Operating cash flow |
|
|
6,467 |
48,735 |
43,369 |
45,830 |
(2,748) |
65,953 |
55,688 |
|
Net cash from investing activities |
(3,632) |
84 |
(198) |
(1,014) |
(77) |
(474) |
(7,260) |
|||
Net cash from (used in) financing |
(17,510) |
(19,580) |
(36,359) |
(29,035) |
(24,646) |
(24,451) |
(30,833) |
|||
Net cash flow |
|
|
(14,675) |
29,239 |
6,812 |
15,781 |
(27,471) |
41,028 |
17,596 |
|
Opening net (cash)/debt |
|
|
(74,518) |
(59,591) |
(89,002) |
(95,852) |
(111,673) |
(84,202) |
(125,217) |
|
FX effect |
|
|
(252) |
172 |
38 |
40 |
0 |
(13) |
0 |
|
Closing net (cash)/debt |
|
|
(59,591) |
(89,002) |
(95,852) |
(111,673) |
(84,202) |
(125,217) |
(142,813) |
|
Source: Company data, Edison Investment Research
|
|
Research: TMT
During H121 Nanoco successfully delivered on the technical and commercial milestones for its programme with a major customer to develop new nanomaterials for sensing applications. Management implemented further restructuring actions, cutting cash-burn to £0.4m/month and extending the cash runway to calendar H222.