“Edison’s accessible and high-quality research gives us the opportunity to communicate an independent perspective of Tyman to a wide variety of potential stakeholders.”
Currency in GBP
Last close As at 08/06/2023
GBP0.31
— 0.00 (0.00%)
Market capitalisation
GBP17m
Research: Financials
Ebiquity’s pre-close update indicates that trading has been in line with management and market estimates and we are making no changes to our numbers at this point. Post year-end news flow has been constructive (the Digital Decisions acquisition and the buy-in of the Italian minority). A potentially bigger opportunity comes from the news that Accenture is planning to withdraw from media measurement. Ebiquity’s share price has been trading near 10-year lows, putting the valuation at a marked discount to the smaller marcomms companies on an EV/EBITDA and on a P/E basis.
Cenkos Securities |
Costs adjusted to protect profitability |
Trading update |
Financial services |
21 February 2020 |
Share price performance
Business description
Next events
Analysts
Cenkos Securities is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||
2019 was a difficult year for UK equity capital markets activity, and Cenkos demonstrated the strength of its flexible business model and the client relationships sustained by its staff, achieving full year profitability despite one-off restructuring costs. Lower fixed costs will benefit future earnings and Cenkos reports a positive start to 2020 with a strong pipeline. Conservatively, we have reduced our revenue/earnings assumptions for this year, but improved market/investor confidence could generate significant upside.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
59.5 |
10.0 |
13.2 |
9.0 |
4.9 |
13.8 |
12/18 |
45.0 |
3.2 |
4.2 |
4.5 |
15.3 |
6.9 |
12/19e |
27.0 |
0.2 |
(0.1) |
4.0 |
N/A |
6.2 |
12/20e |
32.5 |
2.0 |
2.7 |
4.5 |
24.4 |
6.9 |
Note: *PBT and EPS are reported with EPS on a fully diluted basis.
FY19 trading update
Cenkos noted the challenging equity market conditions that were a feature of 2019 with reduced equity issuance and institutional trading activity. Against this background, it took steps to reduce its cost base and indicates that the annual fixed cost base is expected to be more than £3m below the level of 2019. The restructuring will give rise to one-off costs of approximately £1.4m in H219. Despite this additional cost, an improvement in second half revenues, supported by a number of significant fund-raisings, has (subject to audit) allowed a return to profitability in the second half and for the full year following a £0.2m pre-tax loss in the first half.
Outlook: A good start to the year
Cenkos indicates that the stronger momentum seen in the second half of 2019 has continued into the current year and that the strength of its transaction pipeline is encouraging. Reflecting this, the board expects to announce a final dividend with its full year figures in late March. Taking into account the update comments, we have tempered our revenue and recurring cost assumptions for 2019, leaving PBT at £0.25m (£1m previously), including the £1.4m restructuring cost. Given macro uncertainties potentially affecting investor and corporate confidence, we have chosen to adopt a more conservative revenue assumption for 2020 (and sensitivity range – see Exhibit 3) but still look for a 20% recovery in revenues and a significant profit bounce to £2m, with the potential for positive surprises if equity market activity builds and sustains further strength.
Valuation
On our assumptions (page 3), the current share price implies that the market is assuming an ROE of c 12% for Cenkos, above our current year estimate of 6%. However, this would represent a still relatively depressed level and over 10 years the group has achieved an average ROE of 26%. Similarly, the current price to book ratio of 1.3x compares with a 10-year average of 2.3x.
Appointment of chairman
Jeff Hewitt, a non-executive director since 2008, has been acting non-executive chairman since November 2018. Following a search process, Cenkos has announced the appointment, subject to FCA approval, of Lisa Gordon as non-executive chairman. Jeff Hewitt is to retire from the board at the end of February and, if necessary, non-executive director Jeremy Miller will take the position of acting chairman for any interim period.
Lisa Gordon brings more than 25 years of board experience in executive and non-executive positions at both listed and private companies. She is a non-executive director of Alpha FX Group, an AIM-listed corporate foreign exchange specialist, and also the non-executive chairman of Albert Technologies, an AI technology business operating in the digital marketing sector. She was previously a founding director of Local World, which was acquired by Trinity Mirror in 2015, COO of Yattendon Group, a private conglomerate, and corporate development director of Chrysalis Group, a media group. Her early experience was as an analyst at Greig Middleton and County NatWest Securities.
Transactions
Exhibit 1 shows selected transactions in which Cenkos was involved during 2019. AIM total new issues touched a 25-year low last year and there were only 10 IPOs. These included three undertaken by Cenkos (Diaceutics, Brickability and MJ Hudson), underlining the value of its strong track record in raising funds (see our November initiation note for further detail). Since the year end, City AM has reported that Cenkos has been appointed as broker for the potential flotation of FRP Advisory, a provider of corporate restructuring and other corporate finance services, with a possible valuation of £200m. Cenkos’s corporate client Share plc has announced that terms have been agreed for its acquisition by Interactive Investor, a transaction the companies expect to complete in Q320, subject to satisfaction of relevant conditions. Cenkos has highlighted the strength of its pipeline and the pace with which transactions flow through will depend on continued resilience of market levels, together with corporate confidence and institutional investor appetite.
Exhibit 1: Selected completed transactions during 2019 (£m unless shown)
Month |
Company |
Transaction |
Consideration |
February |
Kromek |
Placing |
21.0 |
March |
Diaceutics |
IPO |
17.0 |
April |
Seeing Machines |
Placing |
27.5 |
Tasty |
Placing |
3.3 |
|
May |
Landlore Resources |
Placing |
1.0 |
Falcon Oil & Gas |
Placing |
US$9.0 |
|
June |
GCP Asset Backed Income Fund |
Placing |
63.3 |
Collagen Solutions |
Placing |
6.0 |
|
Marlowe |
Placing and acquisition |
20.0 |
|
July |
Dods |
Placing |
13.2 |
August |
Brickability |
IPO |
56.7 |
Intelligent Ultrasound |
Placing |
6.3 |
|
Rotala |
Placing |
1.1 |
|
September |
Inspiration Healthcare |
Placing |
4.3 |
Equals |
Placing |
14.3 |
|
October |
Duke Royalty |
Placing |
17.5 |
December |
MJ Hudson |
IPO |
31.4 |
Corero Network Security |
Placing |
3.3 |
|
Creo Medical |
Placing |
51.9 |
|
Total |
366.1 |
Source: Cenkos Securities
Estimate changes and sensitivity analysis
Exhibit 2 shows changes in key figures from our estimates, with further detail given in the financial summary. As noted earlier, our more conservative assumption for revenues simply reflects the macro uncertainty that remains a factor in markets. Post-Brexit negotiations may weigh on confidence during the year, impinging on the number of transactions completed. Nevertheless, Cenkos itself is confident in the strength of its pipeline, and recent statements from Arden and Numis also reference higher current/prospective levels of activity. As an alternative indicator, RBG Holdings (legal and other professional services) reported in a January trading update that its corporate division, focused on commercial transactions, is beginning to see a significant increase in the number of transactions it is working on.
Exhibit 2: Estimate changes
Revenue (£m) |
PBT (£m) |
EPS (p) |
DPS (p) |
|||||||||
Old |
New |
Change |
Old |
New |
Change |
Old |
New |
Change |
Old |
New |
Change |
|
12/19e |
29.5 |
27.0 |
-8% |
1.0 |
0.2 |
-75% |
1.0 |
(0.1) |
N/A |
4.0 |
4.0 |
0% |
12/20e |
37.5 |
32.5 |
-13% |
3.5 |
2.0 |
-43% |
5.0 |
2.7 |
-46% |
4.5 |
4.5 |
0% |
Source: Edison Investment Research
As in our initiation note, we underline the uncertainty of prospective revenues and the benefits of the group’s flexible cost base by including an analysis illustrating two alternative scenarios above and below the revenue assumption we have used in our forecast for 2020 (Exhibit 3). As shown, on our estimates, a £2.5m revenue variation would feed through to a change of £0.5m and £0.75m in pretax profits on the low and high scenarios, respectively. For reference, adjusting our previous central revenue scenario (£37.5m) for the revised cost base and other assumptions would, we estimate, result in pre-tax profit of £4m and EPS of 5.8p (5.0p previously).
Exhibit 3: P&L scenario analysis
£000 unless stated |
Low |
Central |
High |
Revenues |
30,000 |
32,500 |
35,000 |
Non-staff costs |
(7,770) |
(7,770) |
(7,770) |
Staff costs |
(20,840) |
(22,840) |
(24,590) |
Operating profit |
1,390 |
1,890 |
2,640 |
Investment income |
130 |
130 |
130 |
Finance income |
(20) |
(20) |
(20) |
Pre-tax profit |
1,500 |
2,000 |
2,750 |
Tax |
(285) |
(380) |
(523) |
Net profit |
1,215 |
1,620 |
2,228 |
Cost/income ratio |
95.4% |
94.2% |
92.5% |
Staff costs/revenue |
69.5% |
70.3% |
70.3% |
EPS (p) |
1.9 |
2.7 |
3.9 |
Source: Edison Investment Research
Finally in this section, it is worth recalling the strength of the Cenkos balance sheet, with end-H119 cash and cash equivalents of £14.7m, and regulatory capital resources £15.9m above the Pillar 1 requirement.
Valuation
On our revised central estimate, Cenkos would generate a return on equity of 6% in 2020, while if our previous assumption for revenues was achieved this would rise to 12%. Using an ROE/COE model and assuming a cost of equity of 10% and growth of 4% suggests the share price at the time of writing (65p) does imply that the market is assuming approximately 12% as the prospective sustainable return. While well ahead of our current year estimate, this has to be seen in the context of the long-term average returns delivered by Cenkos of 28% and 26% over five and 10 years, respectively.
Similarly, the history of the price to book ratio shows that the current multiple of 1.3x compares with a 10-year average of 2.3x (see Exhibit 4 below).
|
Exhibit 4: 10-year history of the price to book value ratio for Cenkos |
|
|
Source: Refinitiv, Edison Investment Research |
Exhibit 5: Financial summary
£000s |
2015 |
2016 |
2017 |
2018 |
2019e |
2020e |
|
Year end 31 December |
|||||||
PROFIT & LOSS |
|
|
|
|
|
|
|
Revenue |
76,513 |
43,743 |
59,504 |
44,953 |
27,000 |
32,500 |
|
Admininstration expenses (ex depreciation) |
(56,510) |
(38,581) |
(49,286) |
(41,655) |
(24,812) |
(30,320) |
|
EBITDA |
20,003 |
5,162 |
10,218 |
3,298 |
2,188 |
2,180 |
|
Depreciation |
(241) |
(182) |
(242) |
(247) |
(648) |
(290) |
|
Operating profit |
19,762 |
4,980 |
9,976 |
3,051 |
1,540 |
1,890 |
|
Non-recurring items |
0 |
0 |
0 |
0 |
(1,400) |
0 |
|
Investment revenues |
134 |
83 |
23 |
103 |
110 |
110 |
|
Profit before tax |
19,896 |
5,063 |
9,999 |
3,154 |
250 |
2,000 |
|
Tax |
(4,525) |
(1,858) |
(1,815) |
(805) |
(90) |
(380) |
|
Profit after tax, continuing operations |
15,371 |
3,205 |
8,184 |
2,349 |
160 |
1,620 |
|
Discontinued operations |
0 |
(661) |
(973) |
0 |
0 |
0 |
|
Profit after tax |
15,371 |
2,544 |
7,211 |
2,349 |
160 |
1,620 |
|
Average number of shares outstanding (m) |
56.5 |
54.7 |
54.7 |
51.8 |
51.0 |
51.0 |
|
EPS continuing operations (p) |
27.2 |
5.9 |
15.0 |
4.2 |
(0.1) |
2.7 |
|
Fully diluted EPS (p) |
26.8 |
4.6 |
13.2 |
4.2 |
(0.1) |
2.7 |
|
Dividend per share (p) |
14.00 |
6.00 |
9.00 |
4.50 |
4.00 |
4.50 |
|
NAV per share (p) |
53.0 |
49.8 |
56.2 |
54.0 |
51.1 |
53.4 |
|
ROE (%) |
43% |
10% |
25% |
8% |
1% |
6% |
|
Cost/income ratio |
74.2% |
88.6% |
83.2% |
93.2% |
94.3% |
94.2% |
|
Staff costs/Revenue |
60.1% |
68.3% |
63.7% |
64.4% |
63.8% |
70.3% |
|
BALANCE SHEET |
|
|
|
|
|
|
|
Non-current assets |
1,626 |
625 |
1,263 |
1,178 |
6,538 |
5,868 |
|
Property, plant and equipment |
296 |
389 |
525 |
558 |
591 |
601 |
|
Other non-current assets |
1,330 |
236 |
738 |
620 |
5,947 |
5,267 |
|
Current assets |
64,725 |
62,692 |
68,492 |
65,334 |
54,185 |
55,355 |
|
Other current assets inc Investments - long positions |
12,706 |
13,811 |
10,615 |
12,648 |
10,168 |
10,168 |
|
Cash |
33,106 |
23,795 |
36,829 |
33,635 |
25,483 |
26,653 |
|
Debtors and other |
18,913 |
25,086 |
21,048 |
19,051 |
18,534 |
18,534 |
|
Current liabilities |
(37,432) |
(35,254) |
(39,641) |
(38,658) |
(34,507) |
(33,827) |
|
Other current liabilities inc short positions |
(2,551) |
(2,694) |
(3,341) |
(6,018) |
(9,007) |
(8,327) |
|
Other current liabilities |
(34,881) |
(32,560) |
(36,300) |
(32,640) |
(25,500) |
(25,500) |
|
Non-current liabilities |
(351) |
(880) |
(366) |
(263) |
(171) |
(171) |
|
Net assets |
28,568 |
27,183 |
29,748 |
27,591 |
26,045 |
27,225 |
|
CASH FLOW |
|
|
|
|
|
|
|
Operating cash flow |
15,538 |
(465) |
6,917 |
3,180 |
2,250 |
4,460 |
|
Working capital and other items |
16,184 |
(1,387) |
13,490 |
1,444 |
(6,134) |
0 |
|
Tax paid |
(5,049) |
(2,533) |
(1,334) |
(1,664) |
(285) |
(380) |
|
Net cash from operating items |
26,673 |
(4,385) |
19,073 |
2,960 |
(4,169) |
4,080 |
|
Fixed asset investment |
(174) |
(272) |
(378) |
(280) |
(307) |
(300) |
|
Acquisitions/disposals |
0 |
0 |
0 |
(100) |
0 |
0 |
|
Other investing activities |
191 |
93 |
23 |
90 |
104 |
110 |
|
Share (purchase)/issuance |
(16,823) |
(438) |
(549) |
(2,353) |
(678) |
0 |
|
Ordinary dividends |
(9,740) |
(4,367) |
(5,201) |
(3,573) |
(2,418) |
(2,040) |
|
Other financing |
47 |
58 |
66 |
62 |
(684) |
(680) |
|
Other |
0 |
0 |
0 |
0 |
0 |
0 |
|
Net cash flow |
174 |
(9,311) |
13,034 |
(3,194) |
(8,152) |
1,170 |
|
Opening net (debt)/cash |
32,932 |
33,106 |
23,795 |
36,829 |
33,635 |
25,483 |
|
FX |
0 |
0 |
0 |
0 |
0 |
0 |
|
Closing net (debt)/cash |
33,106 |
23,795 |
36,829 |
33,635 |
25,483 |
26,653 |
|
Source: Cenkos Securities accounts, Edison Investment Research
|
|
Research: TMT
Ebiquity’s pre-close update indicates that trading has been in line with management and market estimates and we are making no changes to our numbers at this point. Post year-end news flow has been constructive (the Digital Decisions acquisition and the buy-in of the Italian minority). A potentially bigger opportunity comes from the news that Accenture is planning to withdraw from media measurement. Ebiquity’s share price has been trading near 10-year lows, putting the valuation at a marked discount to the smaller marcomms companies on an EV/EBITDA and on a P/E basis.
Get access to the very latest content matched to your personal investment style.
