Numis Corporation — Diversification mitigates market downturn

Numis Corporation (LSE: NUM)

Currency in GBP

Last close As at 26/01/2023

GBP2.10

0.50 (0.24%)

Market capitalisation

GBP230m

Research: Financials

Numis Corporation — Diversification mitigates market downturn

There is no real sign of an improvement in capital markets activity and therefore the near-term trading background for Numis and its peers. However, Numis is reaping the benefits of its investment in building its mergers and acquisition (M&A) activity, which delivered strongly in FY22 and has a good pipeline. The group remains committed to developing its franchise with selective investment, which should help diversify revenues further and support its growth through market fluctuations.

Andrew Mitchell

Written by

Andrew Mitchell

Director, Financials

Financials

Numis

Diversification mitigates market downturn

FY22 results

Financial services

13 December 2022

Price

184p

Market cap

£204m

Net cash (£m) at 30 September 2022

105.7

Shares in issue

110.9m

Free float

75%

Code

NUM

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.0

(23.7)

(42.4)

Rel (local)

2.2

(23.0)

(41.3)

52-week high/low

343p

170p

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 September 2022, it employed 336 staff in offices in London, Dublin and New York and had 176 corporate clients.

Next events

AGM and update

7 February 2023

Analysts

Andrew Mitchell

+44 (0)20 3077 5700

Martyn King

+44 (0)20 3077 5700

Numis is a research client of Edison Investment Research Limited

There is no real sign of an improvement in capital markets activity and therefore the near-term trading background for Numis and its peers. However, Numis is reaping the benefits of its investment in building its mergers and acquisition (M&A) activity, which delivered strongly in FY22 and has a good pipeline. The group remains committed to developing its franchise with selective investment, which should help diversify revenues further and support its growth through market fluctuations.

Year end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/20

154.9

37.1

26.7

12.0

6.9

6.5

09/21

215.6

74.2

49.1

13.5

3.7

7.3

09/22

144.2

20.9

11.9

13.5

15.4

7.3

09/23e

151.8

24.0

16.8

13.5

11.0

7.3

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

FY22 results

For a period in which London Stock Exchange Main market and AIM issuance fell by 47% and 38% respectively, Numis reported FY22 revenue of £144.2m, down 33% compared with a very strong FY21. The decline was moderated by the group’s previous investment in diversification, notably in strengthening the M&A advisory capability where revenues were at a record level. Lower variable compensation drove a 16% reduction in administration costs but there was still an operational gearing effect that left pre-tax profit at £20.9m (-72%). A high effective tax rate amplified the reduction in diluted EPS to 76% (11.9p). The full-year dividend is maintained at 13.5p, supported by a strong balance sheet with a cash position of £106m.

Continuing to look beyond near-term cycle

The outlook for FY23 is uncertain but the trends seen in H222 have continued, with limited capital markets activity and a difficult background for equities. Against this, the near-term pipeline for M&A remains good, suggesting a strong H123. On a longer view, Numis retains a strong client base and will continue to invest selectively in staff and technology to expand its capabilities and enhance its operational efficiency.

Valuation

Our estimate for FY23 is little changed in terms of revenue and pre-tax profit but allowing for the introduction of a higher corporate tax rate trims EPS by 4%. This is not material given the tentative nature of the estimate at an early stage in the year and the uncertain outlook for capital market activity. The shares trade on a price to book ratio of 1.1x, which compares with a 10-year average of 2.1x and, using a ROE/COE model, implies the market is factoring in an ROE of 10.6%. This is similar to the level we estimate for FY23, but significantly below the five- and 10-year averages of 18% and 19%, respectively.

FY22 results analysis

Exhibit 1 puts the FY22 profit and loss result in the context of the FY18–21 figures, showing how revenues have changed over a five-year period. This reflects fluctuations in market activity and the benefits from investment in diversification that has included development of M&A advisory, the international private markets team (Growth Capital Solutions within investment banking), the international equity capital markets activity, debt advisory and, within equities, an electronic trading platform and the event-driven team. Numis notes the M&A and private markets activities together accounted for more than half of investment banking revenues in FY22, while the electronic trading platform contributed 14% of institutional commission income. Our comments on the profit and loss analysis below relate to the changes between FY21 and FY22 unless stated.

Group revenue was 33% lower and unsurprisingly the main source of weakness was in capital markets (-62%) where macroeconomic and geopolitical concerns had a chilling effect on activity and a lower average deal fee in the absence of large transactions. Positively, this was partly offset by strength in M&A advisory (+26%) limiting the decline in investment banking revenues to 39%. The equities performance was relatively resilient in the circumstances, with a revenue decline of 18% against a 20% fall in the Numis Smaller Companies Index and reduced activity among institutional clients. Within equities, good contributions from the electronic trading product and the event-driven team helped mitigate the impact of the difficult trading background.

A comparison between the second-half year-on-year revenue decline of 30% at Numis and the 42% H123 reduction for Peel Hunt (also covering the six months to end-September) demonstrates the impact of the differences in activity mix. Peel Hunt also seeks to diversify, but at this point two of its three main activities (investment banking and execution services) contributed to the sharper revenue decline.

The year-end number of retained clients at 176 versus 182, was affected by acquisitions of clients. This, together with other departures, more than offset the addition of 15 new clients. Numis’s clients have an average market capitalisation of £1bn.

The other operating income line shows a net loss of £1.4m on the investment portfolio, which was valued at £18.4m at the year-end (vs £21.8m FY21). Two disposals during the year raised £8m, including the remaining holding in Oxford Nanopore Technologies (where Numis invested 13 years ago and acted for the company in its IPO at the end of FY21). The proceeds were partially reinvested in three new investments. Remaining legacy investments are being progressively sold, with the aim being to have a broadly stable number of holdings through reinvestment.

Total administrative expenses were 16% lower, including a 25% reduction in total staff costs mainly reflecting lower variable remuneration. The compensation ratio increased to 56.4% from 50.4% as revenue fell and the average headcount increased by 11%. The year-end headcount was 5% higher at 336, with staff additions mainly comprising junior and mid-level roles to support growth. Non-staff costs increased by 8%, some of which related to establishment of the Dublin office.

This left operating profits 75% lower and the operating margin, before other income at 7.4% vs 31.4%. Net finance income was positive in part because of net foreign exchange gains of £3.4m and pre-tax profit was 72% lower. The tax charge at 34% was boosted by a number of factors, including increased tax exposure on share schemes related to the lower Numis share price and tax on investment portfolio disposal gains. As a result diluted EPS was down 76%.

The board has proposed a 7.5p final dividend giving a total of 13.5p, in line with the prior year and a level that the board sees as sustainable across market cycles while still investing in the business.

Exhibit 1: Five-year profit and loss analysis

£m unless stated

FY18

FY19

FY20

FY21

FY22

% change y-o-y

Net trading gains

9.6

4.0

16.0

19.8

12.8

(35)

Institutional income

37.9

33.3

37.2

41.0

37.3

(9)

Equities

47.5

37.3

53.2

60.7

50.1

(18)

Corporate retainers

12.4

13.4

13.5

12.5

12.4

(1)

Advisory

17.3

12.6

11.1

30.9

39.0

26

Capital markets

58.8

48.4

77.0

111.5

42.7

(62)

Investment banking

88.6

74.3

101.7

154.9

94.2

(39)

Total revenue

136.0

111.6

154.9

215.6

144.2

(33)

Other operating income

1.7

(2.2)

0.3

8.7

(1.4)

(116)

Total income

137.8

109.4

155.2

224.3

142.8

(36)

Total staff costs

(75.3)

(64.5)

(86.0)

(108.6)

(81.3)

(25)

Non-staff costs

(31.0)

(33.0)

(32.4)

(39.2)

(42.4)

8

Total administrative expenses

(106.3)

(97.5)

(118.4)

(147.9)

(123.7)

(16)

Operating profit / loss

31.4

11.9

36.8

76.4

19.1

(75)

Finance income/expense

0.2

0.6

0.3

(2.3)

1.8

(178)

Pre-tax profit

31.6

12.4

37.1

74.2

20.9

(72)

Effective tax rate (%)

15.7

25.0

15.4

22.0

34.3

Attributable profit

26.7

9.3

31.4

57.8

13.7

(76)

Diluted EPS (p)

23.0

8.1

26.7

49.1

11.9

(76)

Dividend (p)

12.0

12.0

12.0

13.5

13.5

0

Operating margin before other income (%)

21.8

12.6

23.6

31.4

14.2

Return on equity (%)

19.3

6.6

21.2

33.6

7.4

Source: Numis, Edison Investment Research

The group remains committed to mitigating the dilutive impact of share awards and during FY22 £8.2m and £3.4m were spent in buying back shares for treasury and the employee benefit trust, respectively.

The group has continued to pursue its five strategic pillars, which remain in place.

1.

Build the size and quality of the corporate franchise. This underpins transaction opportunities for the capital markets and advisory teams. While M&A has provided a particular headwind to the client count in FY22, client recruitment has continued and quality remains a focus.

2.

Become the leading UK equities platform by growing market share in both equities and equity capital markets.

3.

Diversify into new products and markets. Here the aim is to increase advisory and private markets revenues further. Investment in Dublin and the United States should help attract non-UK equity capital market clients and facilitate a broadening of the institutional investor client base.

4.

Maintain operating and capital discipline. While costs have increased with growth, the move to a new London office and the opening of the Dublin office the compensation ratio has been managed within the 50–60% target range.

5.

Deliver shareholder returns through revenue growth, with greater diversity of income and control over the share count resulting in EPS growth and lower volatility through the market cycle.

Background

Here we briefly review the market background for Numis. The first two charts show the very subdued level of equity issuance on both the Main Market and AIM markets for most of calendar 2022. Numis suggests that market uncertainty and unfavourable macroeconomic conditions are likely to affect the investment banking industry for some time, but we note that the period of reduced activity is already quite extended and that a return to greater stability could prompt quite a sharp recovery in activity based on prior market cycles.

Exhibit 2: LSE Main Market issuance (money raised)

Exhibit 3: LSE AIM issuance (money raised)

Source: London Stock Exchange (last data November)

Source: London Stock Exchange (last data November)

Exhibit 2: LSE Main Market issuance (money raised)

Source: London Stock Exchange (last data November)

Exhibit 3: LSE AIM issuance (money raised)

Source: London Stock Exchange (last data November)

Trading activity (Exhibit 4) previously peaked with the onset of the pandemic in March 2020 (Main Market) and subsequently on AIM when there was a rotation into higher risk/small-cap stocks. That rotation was also evident in the relative performance of the CBOE All-Companies and Small-Cap indices. Recent activity levels have been subdued, particularly for AIM. The equity indices (Exhibit 5) fell in reaction to the attack on Ukraine and its economic repercussions. More recently there has been some recovery but further volatility seems quite likely given the continuing macroeconomic uncertainty. In these circumstances, Numis’s consistency in pursuing its strategy and willingness to invest selectively to hire key staff when market conditions are difficult seem likely to support growth through market cycles.

Exhibit 4: LSE average daily value traded (£m)

Exhibit 5: UK equity indices

Source: London Stock Exchange (Main Market order book and AIM)

Source: Refinitiv, CBOE indices

Exhibit 4: LSE average daily value traded (£m)

Source: London Stock Exchange (Main Market order book and AIM)

Exhibit 5: UK equity indices

Source: Refinitiv, CBOE indices

Financials

Exhibit 6 gives headline figures for the actual result versus estimate for FY22 and revised estimates for FY23. The changes for FY23 are modest. We have factored in higher interest income reflecting the increase in base rate and expectation of further increases and also allowed for a higher facility fee for a larger credit facility (see below). We adjust for the reintroduction of a 25% corporation tax rate during the year and this is the main reason for a 4% reduction in our EPS estimate.

Exhibit 6: 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/a

144.1

144.2

0.1%

22.1

20.9

-5.4%

21.0

11.9

-43.3%

13.5

13.5

0.0%

09/23e

152.0

151.8

-0.1%

23.7

24.0

1.1%

17.5

16.8

-4.3%

13.5

13.5

0.0%

Source: Edison Investment Research. Note: For FY22 ‘old’ is our estimate and ‘new’ actual result.

A segmental breakdown of our revenue estimate is given in Exhibit 7. Here we have a virtually unchanged estimate for total revenue but have assumed a larger contribution from advisory than before and less from capital markets. Given the current market background, we assume the first half for capital markets will remain subdued while the strong advisory pipeline suggests that at least the first half will remain strong. The second-half outlook is less certain, but we have assumed some improvement in capital markets which accounts for the increase for the year as a whole in that activity and for group as a whole.

Exhibit 7: Revenue analysis

£000

2020

2021

2022

2023e

Net trading gains

16,003

19,754

12,764

13,000

Institutional income

37,192

40,957

37,314

35,000

Equities

53,195

60,711

50,078

48,000

Corporate retainers

13,536

12,471

12,395

12,320

Advisory

11,146

30,884

39,023

39,500

Capital markets

77,022

111,516

42,733

52,000

Investment banking

101,704

154,871

94,151

103,820

Total revenue

154,899

215,582

144,229

151,820

Source: Edison Investment Research

At the end of September, cash stood at £105.7m vs £111.5m at end-H122 and £134.1m at the end of FY21. The average daily cash position in FY22 was £110m with a variance between high and low cash positions of £106m. The £28.2m reduction in cash in FY22 reflected an operating cash inflow of £23.8m before a negative working movement of £22.6m (working capital items are typically volatile subject to movements in trade receivables and payables and timing of fee receipts and variable compensation payments). Net of this, the operating cash inflow was £1.2m. Dividend payments and share purchases absorbed £27.1m and other items a further £2.3m. To provide a longer-term view, in the last five years net operating cash flow has averaged £33.7m per year, share purchases and dividends £28.0m and cash has increased by an average of £2.1m.

Numis has refinanced its revolving credit facility, increasing it from £35m to £50m at a lower margin and with greater financial flexibility. The company expects this to remain undrawn for most of the year but it does provide scope for normal business activities that generate substantial variance in cash balances, as highlighted above.

Numis continues to operate with capital significantly in excess of its regulatory requirements. A new regulatory capital regime applied from January 2022 and Numis indicates that its Pillar 1 requirement will be lower under this regime but, for a transitional period, the requirement remains unchanged until the Financial Conduct Authority has completed its review of Numis’s internal assessment.

Valuation

The chart below shows a 10-year history of the price to book ratio for Numis. The current value is 1.1x, compared with the 10-year average of 2.1x. The implied ROE required to match the share price at the time of writing (185p) would be 10.6% (using a ROE/COE model with a discount rate of 10%). This is above the depressed FY22 level of 7.4% but significantly below longer-term averages (five and 10 years, 18% and 19%, respectively) and highlights the caution built into the current valuation.

Exhibit 8: 10-year history of the price to book value ratio for Numis

Source: Refinitiv, Edison Investment Research

Exhibit 9 shows a peer comparison table including UK investment banks/brokers and US and European investment banks and advisory firms. Comparisons are heavily qualified by the differences between the activities of the companies, the absence of consensus estimates for the UK companies and inconsistent year-ends. Nevertheless, we note that Numis offers a yield of 7.3%, and its P/E ratio for the year to September 2022 is lower than the consensus current year P/E for US/European investment banks and advisory firms, almost all of which have December year-ends. Most companies in the peer table have price to book values below 2x.

Exhibit 9: 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

184

206

15.4

11.0

7.3

7.4

1.1

Cenkos

46

26

7.6

N/A

9.3

13.0

0.9

FinnCap

15

27

4.2

N/A

11.7

13.8

0.8

Peel Hunt

84

102

N/A

N/A

N/A

N/A

1.1

WH Ireland

28

17

11.8

N/A

N/A

8.4

1.1

UK peer average

7.8

N/A

10.5

11.7

1.0

US, European IB and advisory

Bank of America

32.7

262,574

9.2

10.3

2.4

12.2

1.0

Evercore

109.0

4,234

6.2

10.0

2.4

66.1

3.1

Goldman Sachs

363.2

122,985

6.1

10.6

1.8

23.0

1.3

Greenhill

9.9

176

5.7

84.7

2.0

N/A

N/A

Jefferies Financial

36.3

8,317

5.9

11.5

2.2

N/A

0.8

JP Morgan

134.2

393,665

8.7

11.5

2.8

19.0

1.5

Moelis

42.4

2,907

7.8

17.2

4.0

N/A

5.4

Morgan Stanley

91.1

154,003

11.3

14.2

2.3

15.0

1.7

PJT Partners

78.6

3,142

17.7

19.2

0.3

137.2

16.0

Stifel Financial

61.0

6,486

8.6

10.1

1.0

18.1

1.5

Credit Suisse

3.1

12,385

N/A

N/A

3.1

N/A

0.2

Deutsche Bank

10.0

20,679

7.3

5.6

2.0

5.2

0.4

UBS

18.1

63,828

8.8

8.6

2.8

12.4

1.0

US, European IB and advisory average

8.6

17.8

2.2

34.2

2.8

Source: Refinitiv. Note: Priced at 12 December 2022. P/Es are for financial years therefore not all same period end.


Exhibit 10: Financial summary

£'000s

2017

2018

2019

2020

2021

2022

2023e

Year end 30 September

PROFIT & LOSS

Revenue

 

 

130,095

136,047

111,610

154,899

215,582

144,229

151,820

Administrative expenses (excl. amortisation and depreciation)

(83,626)

(94,603)

(85,432)

(105,327)

(133,651)

(112,275)

(116,530)

Share based payment

(10,454)

(10,583)

(10,914)

(9,961)

(9,634)

(6,345)

(6,600)

EBITDA

 

 

36,015

30,861

15,264

39,611

72,297

25,609

28,690

Depreciation

 

 

(1,226)

(1,113)

(1,124)

(3,016)

(4,416)

(4,794)

(4,858)

Amortisation

(89)

(49)

(44)

(105)

(158)

(302)

(260)

Operating Profit

 

 

34,700

29,699

14,096

36,490

67,723

20,513

23,572

Net finance income

188

212

550

263

(2,288)

1,775

400

Non recurring items

0

0

0

0

0

0

0

Other operating income

3,431

1,733

(2,210)

310

8,715

(1,432)

0

Profit before tax

 

 

38,319

31,644

12,436

37,063

74,150

20,856

23,972

Tax

(7,942)

(4,967)

(3,110)

(5,713)

(16,303)

(7,153)

(5,487)

Profit after tax (FRS 3)

 

 

30,377

26,677

9,326

31,350

57,847

13,703

18,485

Average diluted number of shares outstanding (m)

117.2

115.8

114.9

117.3

117.7

115.0

110.2

EPS - basic (p)

27.4

25.1

8.8

29.9

54.2

12.4

17.3

EPS - diluted (p)

 

 

25.9

23.0

8.1

26.7

49.1

11.9

16.8

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

131.6

150.0

163.3

166.4

170.5

ROE (%)

23%

19%

6.6%

21.2%

33.6%

7.4%

10.0%

EBITDA margin (%)

27.7%

22.7%

13.7%

25.6%

33.5%

17.8%

18.9%

Operating margin (%)

26.7%

21.8%

12.6%

23.6%

31.4%

14.2%

15.5%

BALANCE SHEET

Fixed assets

 

 

6,147

8,215

6,832

12,639

52,641

46,487

40,467

Current assets

 

 

407,850

533,033

326,641

509,034

683,319

576,308

579,740

Total assets

 

 

413,997

541,248

333,473

521,673

735,960

622,795

620,207

Current liabilities

 

 

(280,371)

(398,112)

(195,319)

(361,397)

(509,654)

(396,665)

(396,665)

Long term liabilities

0

0

0

(2,643)

(39,580)

(40,909)

(39,351)

Net assets

 

 

133,626

143,136

138,154

157,633

186,726

185,221

184,191

CASH FLOW

Operating cash flow

 

 

43,369

45,830

(2,748)

65,953

58,330

1,174

31,913

Net cash from investing activities

(198)

(1,014)

(77)

(474)

(9,191)

(1,133)

(808)

Net cash from (used in) financing

(36,359)

(29,035)

(24,646)

(24,451)

(39,857)

(28,240)

(27,673)

Net cash flow

 

 

6,812

15,781

(27,471)

41,028

9,282

(28,199)

3,432

Opening net (cash)/debt

 

 

(89,002)

(95,852)

(111,673)

(84,202)

(125,217)

(134,125)

(105,653)

FX effect

 

 

38

40

0

(13)

(374)

(273)

0

Closing net (cash)/debt

 

 

(95,852)

(111,673)

(84,202)

(125,217)

(134,125)

(105,653)

(109,085)

Source: Company data, Edison Investment Research


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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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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.

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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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Oryzon Genomics has presented the top-line results of its Phase IIa ALICE trial investigating its lead oncology LSD1 inhibitor iadademstat in combination with azacitidine for the treatment of acute myeloid leukaemia (AML) in newly diagnosed elderly/unfit patients. The study met its primary endpoints of safety and tolerability with no major non-haematological or organ related toxicities reported. Notably, iadademstat also displayed an encouraging efficacy profile, achieving an objective response rate (ORR) of 81% and median overall survival (mOS) of 11.1 months, significantly higher than previously reported values for azacitidine monotherapy (ORR: c 30%; mOS: c 7–8 months). We believe these positive results clearly demonstrate the clinical utility of iadademstat and provide important proof of concept for the drug’s use in the AML setting. We value Oryzon at €847m or €15.5 per share.

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