Numis Corporation — A subdued H222 though M&A outlook positive

Numis Corporation (LSE: NUM)

Currency in GBP

Last close As at 03/02/2023

GBP2.12

6.00 (2.92%)

Market capitalisation

GBP226m

Research: Financials

Numis Corporation — A subdued H222 though M&A outlook positive

Tough market conditions have continued through Numis’s second half. This is likely to have left full year revenue down about a third compared with the prior year. The outcome would have been worse without the investment the firm has made to develop its mergers and acquisitions activity, which has mitigated the downturn. The outlook for the start of FY23 remains clouded, but on a longer view the group’s existing franchise and continued focus on developing its client base and expanding internationally and into complementary areas should underpin its performance through market cycles.

Andrew Mitchell

Written by

Andrew Mitchell

Director, Financials

Financials

Numis Corporation

A subdued H222 though M&A outlook positive

Year-end trading update

Financial services

3 October 2022

Price

233p

Market cap

£259m

Net cash (£m) at 31 March 2022

111.5

Shares in issue

111.3m

Free float

75%

Code

NUM

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.3)

(7.6)

(35.4)

Rel (local)

0.8

(3.2)

(30.3)

52-week high/low

359p

230p

Business description

Numis Corporation is one of the UK's leading independent investment banking groups, offering a full range of research, execution, equity capital markets, corporate broking and advisory services. At the end of March 2022, it employed 325 staff in offices in London, Dublin and New York and had 183 corporate clients.

Next events

FY22 results

8 December 2022

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

Tough market conditions have continued through Numis’s second half. This is likely to have left full year revenue down about a third compared with the prior year. The outcome would have been worse without the investment the firm has made to develop its mergers and acquisitions activity, which has mitigated the downturn. The outlook for the start of FY23 remains clouded, but on a longer view the group’s existing franchise and continued focus on developing its client base and expanding internationally and into complementary areas should underpin its performance through market cycles.

Year end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/20

154.9

37.1

26.7

12.0

8.7

5.2

09/21

215.6

74.2

49.1

13.5

4.7

5.8

09/22e

144.1

22.1

21.0

13.5

11.1

5.8

09/23e

152.0

23.7

17.5

13.5

13.3

5.8

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

A challenging period in capital markets

In its year-end update, Numis has reported that full year revenues are expected to be approximately £144m, down c 33% versus FY21 and slightly below our expectation. Unsurprisingly the main source of weakness has been the capital markets activity, where macroeconomic and geopolitical concerns have had a chilling impact on activity. Positively, this was partly offset by M&A advisory, which achieved a further record result and Investment Banking revenues in total are expected to be down 39%. Within Equities the level of institutional activity has been affected, with clients experiencing fund outflows and revenue in this segment is expected to be more than £50m but down c 17%. A Dublin office was opened in Q422, which will facilitate providing services to non-UK issuers, European institutional investors and private companies seeking growth capital.

M&A is a bright spot in the near term

The near-term outlook is generally subdued given market volatility and the uncertain economic and geopolitical outlook. The M&A advisory area remains more active currently and is advising on nine announced public bids with an average transaction value of £1.5bn. Our profit estimate for FY22 is reduced by 12% to reflect the indicated revenue outcome and an allowance for negative valuation changes in the investment portfolio. In our new estimate for FY23 we have assumed that activity levels in H123 remain similar to H222, but that there is a degree of recovery in H223. For further discussion, see Estimate changes below.

Valuation

The difficult market background has meant Numis’s shares and those of its peers have been weak. Year-to-date Numis is down 32%, UK peers 49% and North American and European investment banks and advisory firms 32%. The shares trade on a multiple of 13.3x relatively depressed FY23e earnings and a price to book ratio of 1.4x compared with a 10-year average of 2.1x.

Estimate changes

We have adjusted our estimate for FY22 to reflect the year-end update and introduced an estimate for FY23.

Exhibit 1 shows a segmental analysis of our revenue assumptions for H222, FY22 and newly introduced estimates for FY23, with comparative historical periods. At this stage our assumptions for FY23 are tentative given that uncertainties about fluctuations in market sentiment and hence capital markets activity levels are heightened currently. We assume that FY23 starts on a relatively muted note and that overall revenue in the first half is similar to the indicated H222 outcome. While the current background seems foreboding, markets do attempt to discount future developments and we have allowed for an improvement in activity in H223 and hence a modest increase in revenue for FY23 as a whole.

Exhibit 1: Revenue analysis

£000s

2020

2021

H122

H222e

2022e

2023e

Net trading gains

16,003

19,754

6,478

6,800

13,278

13,000

Institutional income

37,192

40,957

19,633

17,300

36,933

35,000

Equities

53,195

60,711

26,111

24,100

50,211

48,000

Corporate retainers

13,536

12,471

6,111

6,180

12,291

12,490

Advisory

11,146

30,884

17,246

18,500

35,746

37,000

Capital markets

77,022

111,516

24,685

21,200

45,885

54,500

Investment banking

101,704

154,871

48,042

45,880

93,922

103,990

Total revenue

154,899

215,582

74,153

69,980

144,133

151,990

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 3). The larger reduction in FY22 profit compared with the revenue change reflects operational gearing and the assumption of negative valuation changes in the investment portfolio, which at the half year end was valued at £17.6m. This is included in other operating income for which we now assume a loss of £2m. For FY23 we factor in a return to a full tax charge (19%) following the one-off adjustment that gave rise to a tax credit in FY22; this explains the reduction in EPS between the two years.

Exhibit 2: Estimate changes

Revenue (£m)

PBT (£m)

Fully diluted EPS (p)

DPS (p)

Old

New

Change

Old

New

Change

Old

New

Change

Old

New

Change

09/22e

145.8

144.1

-1.2%

25.1

22.1

-12.1%

23.5

21.0

-10.4%

14.0

13.5

-3.6%

09/23e

N/A

152.0

N/A

23.7

N/A

17.5

N/A

13.5

Source: Edison Investment Research

In previous notes we have given indications of profit sensitivity to different revenue outcomes, allowing for variable compensation and holding other variables stable. Updating this based on our new FY23 estimate suggests that a £10m change in our revenue assumption would move pre-tax profit by c £4m. On another calculation we estimate that revenue would have to fall to below approximately £117m before incurring a loss, and even at that level, cost containment might provide further leeway.


Exhibit 3: Financial summary

£'000s except where stated

2017

2018

2019

2020

2021

2022e

2023e

Year end 30 September

PROFIT & LOSS

Revenue

 

 

130,095

136,047

111,610

154,899

215,582

144,133

151,990

Administrative expenses (excl. amortisation and depreciation)

(83,626)

(94,603)

(85,432)

(105,327)

(133,651)

(106,681)

(114,480)

Share based payment

(10,454)

(10,583)

(10,914)

(9,961)

(9,634)

(6,525)

(6,600)

EBITDA

 

 

36,015

30,861

15,264

39,611

72,297

30,927

30,910

Depreciation

 

 

(1,226)

(1,113)

(1,124)

(3,016)

(4,416)

(4,566)

(4,858)

Amortisation

(89)

(49)

(44)

(105)

(158)

(258)

(260)

Operating Profit

 

 

34,700

29,699

14,096

36,490

67,723

26,103

25,792

Net finance income

188

212

550

263

(2,288)

(2,051)

(2,090)

Non-recurring items

0

0

0

0

0

0

0

Other operating income

3,431

1,733

(2,210)

310

8,715

(2,000)

0

Profit before tax

 

 

38,319

31,644

12,436

37,063

74,150

22,052

23,702

Tax

(7,942)

(4,967)

(3,110)

(5,713)

(16,303)

1,773

(4,503)

Profit after tax (FRS 3)

 

 

30,377

26,677

9,326

31,350

57,847

23,825

19,199

Average diluted number of shares outstanding (m)

117.2

115.8

114.9

117.3

117.7

113.3

109.6

EPS - basic (p)

27.4

25.1

8.8

29.9

54.2

21.7

18.1

EPS - diluted (p)

 

 

25.9

23.0

8.1

26.7

49.1

21.0

17.5

Dividend per share (p)

12.00

12.00

12.00

12.00

13.50

13.50

13.50

NAV per share (p)

125.0

135.0

131.3

149.8

168.3

172.3

172.3

ROE (%)

23%

19%

6.6%

21.2%

33.6%

12.8%

10.4%

EBITDA margin (%)

27.7%

22.7%

13.7%

25.6%

33.5%

21.5%

20.3%

Operating margin (%)

26.7%

21.8%

12.6%

23.6%

31.4%

18.1%

17.0%

BALANCE SHEET

Fixed assets

 

 

6,147

8,215

6,832

12,639

52,641

47,984

42,086

Current assets

 

 

407,850

533,033

326,641

509,034

683,319

480,927

483,903

Total assets

 

 

413,997

541,248

333,473

521,673

735,960

528,911

525,989

Current liabilities

 

 

(280,371)

(398,112)

(195,319)

(361,397)

(509,654)

(303,151)

(303,151)

Long term liabilities

0

0

0

(2,643)

(39,580)

(39,778)

(39,152)

Net assets

 

 

133,626

143,136

138,154

157,633

186,726

185,982

183,686

CASH FLOW

Operating cash flow

 

 

43,369

45,830

(2,748)

65,953

58,329

7,175

33,907

Net cash from investing activities

(198)

(1,014)

(77)

(474)

(9,190)

(2,020)

(2,210)

Net cash from (used in) financing

(36,359)

(29,035)

(24,646)

(24,451)

(39,857)

(31,203)

(28,720)

Net cash flow

 

 

6,812

15,781

(27,471)

41,028

9,282

(26,048)

2,976

Opening net (cash)/debt

 

 

(89,002)

(95,852)

(111,673)

(84,202)

(125,217)

(134,125)

(108,409)

FX effect

 

 

38

40

0

(13)

(374)

332

0

Closing net (cash)/debt

 

 

(95,852)

(111,673)

(84,202)

(125,217)

(134,125)

(108,409)

(111,385)

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 £60,000 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 2022 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.

United States

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

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 £60,000 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 2022 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.

United States

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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