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Research: Financials
A strong end to FY21 means that Numis expects revenues of c £215m and prompts a further increase in our estimate. The near-term outlook is also very positive, with a number of IPOs in the pipeline. Market cycles will mean less favourable conditions at some point, but the success Numis has had in growing and broadening its franchise puts it in a good position to make further progress through these fluctuations.
Written by
Numis Corporation |
Another strong quarter and positive outlook |
FY21 year-end update |
Financial services |
1 October 2021 |
Share price performance
Business description
Next events
Analysts
Numis Corporation is a research client of Edison Investment Research Limited |
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A strong end to FY21 means that Numis expects revenues of c £215m and prompts a further increase in our estimate. The near-term outlook is also very positive, with a number of IPOs in the pipeline. Market cycles will mean less favourable conditions at some point, but the success Numis has had in growing and broadening its franchise puts it in a good position to make further progress through these fluctuations.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
|
09/19 |
111.6 |
12.4 |
8.1 |
12.0 |
44.4 |
3.3 |
|
09/20 |
154.9 |
37.1 |
26.7 |
12.0 |
13.5 |
3.3 |
|
09/21e |
215.2 |
66.4 |
44.9 |
12.0 |
8.0 |
3.3 |
|
09/22e |
181.4 |
44.2 |
29.8 |
12.0 |
12.1 |
3.3 |
|
Note: *PBT and EPS are on a reported basis and EPS is fully diluted.
A strong end to the year and investing for the future
In its year-end update, Numis has reported a further strong quarter in the period to end September and expects FY21 revenue in the region of £215m (FY20: £155m), including Investment Banking revenue of over £150m (FY20: £102m). Pre-tax profits are expected to be significantly higher than the £37.1m reported for FY20. In Investment Banking, a summer pause in IPO activity and more subdued markets were offset by several significant M&A transactions. During the year, market share gains in UK capital markets were also augmented by private markets transactions and deals for non-UK issuers, which point to the development of the franchise. To further this development, additional recruitment has taken place and is planned. The second half performance for Equities was strong, although revenue did not match an exceptional H121 (£33.4m). FY21 Institutional income was ahead of the prior year and Trading produced consistent profits through the year, benefiting from a favourable market and a higher capital allocation.
Positive outlook
Looking ahead, Numis expects to launch a number of IPOs in the coming weeks and has a very strong pipeline including private markets. UK M&A activity is also seen as likely to remain high. This creates a very positive backdrop for the start of Numis’s FY22. As ever, maintenance of high activity levels will depend on market sentiment remaining favourable and, after a period of strong recovery from the initial impact of the pandemic, the potential for a quieter period is clear. On a longer view, Numis’s success in strengthening its business by investing to support its clients, developing private markets activities and broadening its franchise to non-UK clients, bodes well for its ability to grow further through market cycles.
Valuation
We have increased our FY21 EPS forecast by 7.5% and introduced an indicative FY22 estimate, which factors in some normalisation of activity levels (see Exhibit 5). This gives prospective P/Es of 8.0x and 12.1x respectively. The FY21 multiple places it below the average for US and European investment banks and its yield and ROE are relatively high (see Exhibit 7).
Background and estimate changes
Exhibits 1 and 2 show the trends in total issuance for the London Stock Exchange Main and AIM markets. For the five months to end August, Main Market total issuance was down 47% compared with the exceptionally strong, pandemic-influenced, prior year period when funds were being raised to support company balance sheets. However, within the lower overall total, new issue money raised was up 60%, reflecting more favourable market conditions. Over the same period, AIM total money raised was up 14% and, as with the Main market, new issuance was much stronger at more than 7x the depressed prior year level.
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Exhibit 1: LSE Main Market issuance (money raised) |
Exhibit 2: LSE AIM issuance (money raised) |
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Source: London Stock Exchange |
Source: London Stock Exchange |
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Exhibit 1: LSE Main Market issuance (money raised) |
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Source: London Stock Exchange |
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Exhibit 2: LSE AIM issuance (money raised) |
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Source: London Stock Exchange |
Exhibit 3 illustrates the recent performance of UK equity indices. The strong recovery from the pandemic-induced fall last year is clear with a more marked pick-up for smaller-cap stocks evident since late 2020 as a rotation towards higher-risk/more economically sensitive stocks took place. Both indices have seen a flatter performance more recently. The next chart shows the daily value traded on the London Stock Exchange order book and on AIM. Here there is difference evident between the pattern of activity for the two markets, with the Main Market showing a sharp spike as the pandemic impacted but AIM activity following later as interest rotated towards smaller-cap or risker stocks. Both have seen a more recent (partly seasonal) decline towards more normal levels.
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Exhibit 3: UK equity indices |
Exhibit 4: LSE average daily value traded (£m) |
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Source: Refinitiv, CBOE indices |
Source: London Stock Exchange (Main Market order book and AIM) |
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Exhibit 3: UK equity indices |
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Source: Refinitiv, CBOE indices |
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Exhibit 4: LSE average daily value traded (£m) |
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Source: London Stock Exchange (Main Market order book and AIM) |
We have adjusted our estimates to reflect the strong final quarter performance reported in the update. Exhibit 5 shows a segmental analysis of our revenue assumptions for H221, FY21 and newly introduced estimates for FY22 with prior full-year comparatives. Our total revenue estimate for FY21 is increased by 3.4%. At this stage our assumptions for FY22 are tentative given the normal uncertainties about fluctuations in market sentiment and hence capital markets activity levels. We have assumed a strong start to the year given Numis’s comments about its pipeline, but have then allowed for some normalisation on the basis that there may be a quieter phase in activity.
Exhibit 5: Revenue analysis
£000s |
2019 |
2020 |
H121 |
H221e |
2021e |
2022e |
Net trading gains |
4,008 |
16,003 |
11,507 |
9,493 |
21,000 |
14,500 |
Institutional income |
33,317 |
37,192 |
21,879 |
19,121 |
41,000 |
38,000 |
Equities |
37,325 |
53,195 |
33,386 |
28,614 |
62,000 |
52,500 |
Corporate retainers |
13,357 |
13,536 |
6,293 |
6,290 |
12,583 |
12,910 |
Advisory |
12,576 |
11,146 |
12,428 |
15,572 |
28,000 |
31,000 |
Capital markets |
48,352 |
77,022 |
63,319 |
49,281 |
112,600 |
85,000 |
Investment banking |
74,285 |
101,704 |
82,040 |
71,143 |
153,183 |
128,910 |
Total revenue |
111,610 |
154,899 |
115,426 |
99,757 |
215,183 |
181,410 |
Source: Edison Investment Research
On expenses, we have allowed for a further increase in staff numbers in H221 and also in FY22 to support client service levels in investment banking and the new Dublin office. Some double running costs will drop out in FY22 following the recent move to the new headquarters, but non-staff costs are likely to be pushed up by increased depreciation following IT updates with the move, costs related to the Dublin office and higher travel and entertainment spending following the end of lockdown restrictions.
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 9).
Exhibit 6: Estimate changes
Revenue (£m) |
PBT (£m) |
Fully diluted EPS (p) |
DPS (p) |
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Old |
New |
Change |
Old |
New |
Change |
Old |
New |
Change |
Old |
New |
Change |
|
09/21e |
208.1 |
215.2 |
3.4% |
62.0 |
66.4 |
7.2% |
41.8 |
44.9 |
7.5% |
12.0 |
12.0 |
0.0% |
09/22e |
181.4 |
N/A |
44.2 |
N/A |
29.8 |
N/A |
12.0 |
N/A |
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Source: Edison Investment Research
Valuation
We have updated our peer comparison table showing UK investment banks/brokers and US and European investment banks and advisory firms in Exhibit 7. Comparison is limited by the fact that other UK companies lack consensus estimates and that there are different reporting points across the peers. Nevertheless, we note that Numis offers a relatively high yield, its P/E ratios are below the averages for the US investment banks and its ROE is high in the range.
Exhibit 7: Peer comparison
Price |
Market cap |
Last reported |
Current P/E |
Yield |
ROE |
Price to book |
|
UK brokers |
|||||||
Numis |
360 |
386 |
13.5 |
8.0 |
3.3 |
21.0 |
2.2 |
Arden Partners |
22 |
6 |
3.1 |
N/A |
0.0 |
N/A |
1.3 |
Cenkos |
83 |
47 |
24.9 |
N/A |
4.2 |
8.0 |
1.6 |
FinnCap |
36 |
64 |
8.0 |
N/A |
4.2 |
29.1 |
2.2 |
WH Ireland |
53 |
33 |
25.6 |
N/A |
0.0 |
7.7 |
3.0 |
UK brokers average |
15.0 |
8.0 |
2.4 |
16.5 |
2.0 |
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US, European IB and advisory |
|||||||
Bank of America |
43.1 |
362,430 |
23.0 |
13.2 |
1.7 |
6.8 |
1.5 |
Evercore |
136.4 |
6,166 |
14.2 |
10.7 |
1.7 |
43.8 |
4.5 |
Goldman Sachs |
384.9 |
129,745 |
15.6 |
7.2 |
1.3 |
10.2 |
1.4 |
Greenhill |
14.6 |
279 |
10.7 |
11.8 |
1.4 |
N/A |
N/A |
Jefferies Financial |
37.7 |
9,316 |
14.2 |
7.2 |
1.5 |
8.1 |
1.0 |
JP Morgan |
166.0 |
495,884 |
18.7 |
11.8 |
2.2 |
12.0 |
2.0 |
Moelis |
63.2 |
4,160 |
21.7 |
15.4 |
2.2 |
N/A |
7.6 |
Morgan Stanley |
99.6 |
181,635 |
15.1 |
13.6 |
1.4 |
13.3 |
1.9 |
PJT Partners |
79.7 |
2,847 |
16.2 |
16.1 |
0.3 |
N/A |
12.3 |
Stifel Financial |
69.1 |
7,237 |
15.1 |
10.7 |
0.7 |
N/A |
1.9 |
Credit Suisse |
9.3 |
24,929 |
8.8 |
9.7 |
1.1 |
5.9 |
0.5 |
Deutsche Bank |
11.0 |
22,899 |
16.4 |
10.2 |
0.0 |
2.6 |
0.4 |
UBS |
16.1 |
59,687 |
9.0 |
8.8 |
1.1 |
11.5 |
1.0 |
US, European IB and advisory average |
15.3 |
11.3 |
1.3 |
12.7 |
3.0 |
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Source: Refinitiv. Note: Priced at 29 September 2021. P/Es are for financial years therefore not all same period end.
The chart below shows a 10-year history of the price to book ratio for Numis. The current value is 2.2x, just above the 10-year average of 2.1x. Using an ROE/COE model to infer the ROE required to match the share price (360p) shown gives a value of 17.0%: below the 18% five-year historical average, our FY22 estimate, also 18%, and well below our estimate for FY21 of 30%. Arguably, this does not give sufficient weight to the strengthening in the franchise that has been achieved in recent years.
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Exhibit 8: 10-year history of the price to book value ratio for Numis |
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Source: Refinitiv, Edison Investment Research |
Exhibit 9: Financial summary
£'000s |
2016 |
2017 |
2018 |
2019 |
2020 |
2021e |
2022e |
||
Year end 30 September |
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PROFIT & LOSS |
|||||||||
Revenue |
|
|
112,335 |
130,095 |
136,047 |
111,610 |
154,899 |
215,183 |
181,410 |
Administrative expenses (excl. amortisation and depreciation) |
(76,120) |
(83,626) |
(94,603) |
(85,432) |
(105,327) |
(134,389) |
(124,060) |
||
Share based payment |
(6,229) |
(10,454) |
(10,583) |
(10,914) |
(9,961) |
(9,000) |
(7,000) |
||
EBITDA |
|
|
29,986 |
36,015 |
30,861 |
15,264 |
39,611 |
71,794 |
50,350 |
Depreciation |
|
|
(1,126) |
(1,226) |
(1,113) |
(1,124) |
(3,016) |
(5,293) |
(5,000) |
Amortisation |
(125) |
(89) |
(49) |
(44) |
(105) |
(110) |
(70) |
||
Operating Profit |
|
|
28,735 |
34,700 |
29,699 |
14,096 |
36,490 |
66,391 |
45,280 |
Net finance income |
37 |
188 |
212 |
550 |
263 |
(1,941) |
(1,050) |
||
Other operating income |
3,759 |
3,431 |
1,733 |
(2,210) |
310 |
1,974 |
0 |
||
Profit before tax |
|
|
32,531 |
38,319 |
31,644 |
12,436 |
37,063 |
66,424 |
44,230 |
Tax |
(6,132) |
(7,942) |
(4,967) |
(3,110) |
(5,713) |
(14,697) |
(8,404) |
||
Profit after tax (FRS 3) |
|
|
26,399 |
30,377 |
26,677 |
9,326 |
31,350 |
51,726 |
35,826 |
Average diluted number of shares outstanding (m) |
118.0 |
117.2 |
115.8 |
114.9 |
117.3 |
115.1 |
120.4 |
||
EPS - basic (p) |
23.5 |
27.4 |
25.1 |
8.8 |
29.9 |
49.4 |
32.2 |
||
EPS - diluted (p) |
|
|
22.4 |
25.9 |
23.0 |
8.1 |
26.7 |
44.9 |
29.8 |
Dividend per share (p) |
12.00 |
12.00 |
12.00 |
12.00 |
12.00 |
12.00 |
12.00 |
||
NAV per share (p) |
113.5 |
125.0 |
135.0 |
131.3 |
149.8 |
169.8 |
174.4 |
||
ROE (%) |
22% |
23% |
19% |
6.6% |
21.2% |
29.9% |
18.3% |
||
EBITDA margin (%) |
26.7% |
27.7% |
22.7% |
13.7% |
25.6% |
33.4% |
27.8% |
||
Operating margin (%) |
25.6% |
26.7% |
21.8% |
12.6% |
23.6% |
30.9% |
25.0% |
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BALANCE SHEET |
|||||||||
Fixed assets |
|
|
5,522 |
6,147 |
8,215 |
6,832 |
12,639 |
57,881 |
52,053 |
Current assets |
|
|
312,462 |
407,850 |
533,033 |
326,641 |
509,034 |
584,853 |
603,429 |
Total assets |
|
|
317,984 |
413,997 |
541,248 |
333,473 |
521,673 |
642,734 |
655,482 |
Current liabilities |
|
|
(188,895) |
(280,371) |
(398,112) |
(195,319) |
(361,397) |
(417,956) |
(417,956) |
Long term liabilities |
(12) |
0 |
0 |
0 |
(2,643) |
(36,873) |
(33,251) |
||
Net assets |
|
|
129,077 |
133,626 |
143,136 |
138,154 |
157,633 |
187,905 |
204,275 |
CASH FLOW |
|||||||||
Operating cash flow |
|
|
48,735 |
43,369 |
45,830 |
(2,748) |
65,953 |
23,410 |
50,544 |
Net cash from investing activities |
84 |
(198) |
(1,014) |
(77) |
(474) |
(12,816) |
(1,890) |
||
Net cash from (used in) financing |
(19,580) |
(36,359) |
(29,035) |
(24,646) |
(24,451) |
(35,730) |
(30,078) |
||
Net cash flow |
|
|
29,239 |
6,812 |
15,781 |
(27,471) |
41,028 |
(25,136) |
18,576 |
Opening net (cash)/debt |
|
|
(59,591) |
(89,002) |
(95,852) |
(111,673) |
(84,202) |
(125,217) |
(100,108) |
FX effect |
|
|
172 |
38 |
40 |
0 |
(13) |
27 |
0 |
Closing net (cash)/debt |
|
|
(89,002) |
(95,852) |
(111,673) |
(84,202) |
(125,217) |
(100,108) |
(118,684) |
Source: Company data, Edison Investment Research
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Research: Real Estate
Despite the pandemic and its impact on office occupation, Regional REIT’s (RGL) H121 performance was robust. A stand-out feature was the continuing strong rent collection, underpinning the high level of income distribution. The portfolio has been repositioned for earnings and dividend growth from good quality, affordable regional offices, with RGL expecting a steady near-term performance and acceleration from late 2022.