Cenkos Securities — Flexible model well suited to market conditions

Cenkos Securities (AIM: CNKS)

Currency in GBP

Last close As at 03/02/2023

GBP0.48

1.00 (2.13%)

Market capitalisation

GBP26m

Research: Financials

Cenkos Securities — Flexible model well suited to market conditions

Capital market activity slowed sharply in H122, affecting Cenkos’s results, but the group’s control over fixed costs and variable compensation lessened the impact on underlying profit. While trading conditions remain difficult, Cenkos has increased its client base, invested in staff and retains a strong balance sheet so it should be well positioned to benefit once market activity recovers.

Andrew Mitchell

Written by

Andrew Mitchell

Director, Financials

Financials

Cenkos Securities

Flexible model well suited to market conditions

H122 results

Financial services

15 September 2022

Price

46p

Market cap

£21m

Net cash at end June 2022 (£m)

15.9

Shares in issue

56.7m

Free float

75%

Code

CNKS

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(25.6)

(29.7)

(48.3)

Rel (local)

(22.8)

(30.2)

(47.5)

52-week high/low

88p

45p

Business description

Cenkos Securities is a leading UK institutional securities business that acts as nominated adviser, sponsor, broker and financial adviser to companies across all sectors and stages of growth. Since inception in 2005 it has raised more than £22bn in equity capital for corporate clients, which stood at 103 at the end of June. The business has an approach where fixed costs are contained, helping it to navigate periods of market volatility.

Next events

FY22 results (estimated)

March 2023

Analysts

Andrew Mitchell

+44 (0)20 3681 2500

Martyn King

+44 (0)20 3077 5745

Cenkos Securities is a research client of Edison Investment Research Limited

Capital market activity slowed sharply in H122, affecting Cenkos’s results, but the group’s control over fixed costs and variable compensation lessened the impact on underlying profit. While trading conditions remain difficult, Cenkos has increased its client base, invested in staff and retains a strong balance sheet so it should be well positioned to benefit once market activity recovers.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/18

45.0

3.24

4.4

4.5

10.4

9.8

12/19

25.9

0.15

0.1

3.0

N/A

6.5

12/20

31.7

2.25

3.3

3.5

13.9

7.6

12/21

37.2

3.95

6.0

4.3

7.6

9.2

Note: *PBT and EPS are reported with EPS on a fully diluted basis. Given uncertainty over the incidence of corporate transaction fees, we are not publishing forecasts at this point.

H122 results

Cenkos’s H122 results were, unsurprisingly, affected by the challenging capital markets background, particularly in the second quarter. Total revenue was 30% below H121 at £12.7m. Within this Corporate Finance was 32% lower and net trading gains were 66% down, but, positively, reflecting a net increase in the number of clients (103 versus 100) nomad, broking and research fees were up 4%. The flexible business model with contained fixed costs meant that underlying operating profit fell by a similar percentage (29%) from £2.7m to £1.9m; this was before changes in the fair value of options and warrants received in lieu of fees (a reduction of £1.9m in H122) and incentive plan costs (£0.6m). After these items there was a reported loss before tax of £0.48m compared with a £1.69m profit in H121. An interim dividend of 1.0p, versus 1.25p for H121, is to be paid.

Uncertain outlook but gaining market share

On the outlook, Cenkos cautions that market conditions are likely to remain challenging for the foreseeable future given the macroeconomic background. Nevertheless, there are encouraging signs in that Cenkos accounted for 23% of money raised on AIM in the first half (FY21: 10%), the number of corporate clients is higher and the company has carried out three transactions in H222 to date (nine in H122). The balance sheet remains strong with capital resources of £23.6m, which is comfortably above the regulatory requirement and cash stood at £15.9m. This supports selective investment in staff to maintain service levels to a growing client base.

Valuation

Cenkos shares trade on a price to book value of 0.9x, which compares with a 10-year average of 2.1x. Using an ROE/COE model suggests the current price is discounting a return on equity (ROE) of 9.1%. While trading conditions are currently unfavourable, this appears cautious in comparison with the five-year average ROE of 11%.

Investment summary

Stockbroker focused on small/mid-cap companies and funds

Cenkos is a specialist securities firm that focuses on both corporate and institutional clients. Its main activity is as a stockbroker to UK small and mid-cap companies and investment funds. At end H122 it had 103 retained corporate clients. It has a disciplined approach to controlling fixed costs, which enables attractive rewards for staff when activity is high while containing costs in quiet periods.

With offices in London and Edinburgh and 102 employees at end H122, Cenkos provides an integrated service as a nominated adviser, sponsor, financial and strategic adviser and market maker to a range of companies and investment funds at all stages of growth and across sectors. It focuses on companies listed or planning to list on the London Stock Exchange Main Market and AIM.

Cenkos sees its relationship with institutional clients as based on the quality of its corporate client list and of its sales, research, execution and investor relations services. Cenkos’s research reaches c 1,000 institutional investors. Its trading and market making activity seeks to provide investment clients with liquidity and competitive prices and in H122 it had a top five market share in 84% of client stocks, while making a market in a total of 184 equities and investment trusts.

Sensitivities for the business include changes in equity market conditions, the loss of key staff, reputational risk and regulatory change. Mitigation is provided by balance-sheet strength, and a focus on developing a strong culture and maintaining standards of conduct and compliance.

Exhibit 1 shows key performance indicators that Cenkos management monitors. The variation in funds raised for clients influences revenue per head, underlying profit and dividend figures. The corporate client count declined in 2019 and 2020 but increased in both 2021 and H122: a positive indicator for the future. Important indicators for the resilience of the business are liquidity (cash balance: £15.9m), a significant regulatory capital surplus and non-corporate finance revenue as a percentage of fixed costs, which on our estimate was still above 40% even in the more difficult trading conditions seen in the first half.

Exhibit 1: Performance indicators

2016

2017

2018

2019

2020

2021

H122

Revenue per head (£m)

0.37

0.48

0.41

0.23

0.35

0.41

0.26*

Corporate client base (number)

116

117

116

100

94

101

103

Funds raised for clients (£m)

1,325

2,533

1,193

664

944

1,207

380

Non-corporate finance revenue to fixed costs (%)

66

63

50

41

57

54

43**

Cash at bank (£m)

23.8

36.8

33.6

18.3

32.7

33.5

15.9

Regulatory surplus over Pillar 1 capital requirements (£m)

9.8

9.6

11.2

13.5

14.5

15.8

N/A

Underlying profit (£m)

5.0

10.7

4.6

1.4

4.0

5.9

1.9

Dividend per share (p)

6.00

9.00

4.50

3.00

3.50

4.25

1.00

Source: Cenkos, Edison Investment Research. Note: *Revenue per head is annualised for H122. **Non-corporate finance revenue to fixed costs is estimated for H122.


H122 results analysis

Exhibit 2 shows an analysis of the H122 profit and loss account, with the first-half figures for the previous three years shown for comparison. The group has adjusted the presentation of underlying profit in these results by excluding the impact of options and warrants received in lieu of fees (both the day one valuation and movements in fair value that are within the other operating income/cost line). The comparative periods shown have also been adjusted. Unless stated, in our comments below we are comparing H122 with H121.

As noted earlier, overall revenue was down 30% with the largest absolute reduction (£4.1m) being in corporate finance, where the war in Ukraine and rising inflation had a sharp impact on market confidence and activity levels following a strong start to the year during which Cenkos carried out two of the eight AIM initial public offerings (IPOs) in the year to date. Execution net trading gains, down 66%, were affected by falls in asset values and lower market volume. Nomad, broking and research revenues were up modestly, reflecting an increase in the number of clients from 100 to 103 despite some normal erosion through mergers and acquisitions.

Staff costs were 40% lower, reflecting the reduced pre-bonus profitability and hence variable compensation. Selective hiring to sustain service levels to clients and support growth in the client base meant there was a small increase in the number of employees to 102 at the end of the period, compared with 92 at end H121 and 95 at end FY21. As a percentage of revenue, staff costs were 56% compared with 65% in H121.

Administrative costs (also before restructuring and incentive plan costs) were 3% lower and, compared with H119, 20% lower, reflecting the review of fixed costs undertaken in 2019 and subsequent cost discipline.

Control over costs allowed the decline in underlying operating profit to be limited to 29%.

Exhibit 2: Profit and loss analysis (year end 31 December)

£000

H119

H120

H121

H122

H122 vs H121, % change

Revenue

Corporate finance

6,245

9,216

12,732

8,652

-32

Nomad, broking and research

3,459

3,244

3,076

3,208

4

Execution - net trading gains

1,060

806

2,413

822

-66

Total revenue

10,764

13,266

18,221

12,682

-30

Deduct day one value of options and warrants

0

0

(163)

(192)

18

Staff costs

(6,368)

(7,392)

(11,778)

(7,109)

-40

Administrative expenses before restructuring and incentive plans

(4,336)

(3,539)

(3,565)

(3,457)

-3

Underlying profit (loss)

60

2,335

2,715

1,924

-29

Add back day one value of options and warrants

0

0

163

192

18

Other operating income/expense

(139)

(361)

(45)

(1,936)

N/A

Restructuring costs

(172)

(658)

(466)

0

-100

Incentive plans

(500)

(600)

(624)

4

Operating profit

(251)

816

1,767

(444)

N/A

Investment income - interest income

65

23

7

46

557

Finance costs - interest on lease liability

(10)

(86)

(88)

(85)

-3

Profit before tax

(196)

753

1,686

(483)

N/A

Tax

(5)

(163)

(183)

94

N/A

Profit after tax

(201)

590

1,503

(389)

N/A

Earnings per share (p)

(0.6)

1.2

3.1

(0.8)

N/A

Diluted earnings per share (p)

(0.4)

1.1

2.7

N/A

N/A

Dividend per share (p)

2.00

1.00

1.25

1.00

-20

Source: Cenkos, Edison Investment Research

Other operating income/expense: there was a sharp negative movement in the fair value of options and warrants received in lieu of fees resulting in the £1.9m expense for H122, much higher than the figures for H119–H121. By its nature this figure is volatile with the fair value gains and losses recorded linked to underlying share prices and in H220, when there was a strong market rally, there was a valuation gain of over £0.6m. As Cenkos notes, these instruments may have a lifespan covering a number of reporting periods during which mark-to-model fair values fluctuate, while the timing of crystallisation is uncertain and vesting criteria may never be reached.

Incentive plan costs were slightly higher and included charges relating to the short-term incentive plan (launched in April 2020, ended H122), long-term incentive plan (launched in April 2021 and focused on senior management) and company share option plan (launched March 2021 for all employees).

After these costs and net finance costs there was a pre-tax loss of £0.48m and at the earnings per share level a loss of 0.8p.

Seeking to deliver a level of consistency in payments through market cycles and mindful of the strong balance sheet, the board declared a dividend of 1.0p (1.25p). The group also intends to purchase shares over time to match unvested share awards and manage the issued share capital. In H122 share purchases amounted to £2.6m. Since admission to AIM in 2006, Cenkos has returned the equivalent of 185p per share of cash to shareholders (before the H122 dividend).

The nine transactions carried out during the first half included two IPOs and an introduction to AIM: Facilities by ADF, Clean Power Hydrogen and Neometals.

Background and outlook

In this section we discuss the trading background and outlook for Cenkos, including charts showing the recent performance of the UK equity market and levels of trading volume on the Main and AIM markets.

Exhibit 3 shows the performance of UK all-companies and small-cap equity indices from the end of 2020. This includes a period of recovery following the impact of COVID-19 in 2020 and then a more stable period before the initial reaction to the war in Ukraine and a further softening as economic concerns have grown. The relative strength in small-cap equities from the end of 2020 to September 2021 reflected a rotation towards higher-risk/more economically sensitive stocks. Although the relative performance of small caps has improved more recently, the index has still underperformed the all-companies index by 13% in the year to date.

Exhibit 3: UK equity indices

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

Source: Refinitiv, CBOE indices

Source: London Stock Exchange (Main Market order book and AIM, last value August)

Exhibit 3: UK equity indices

Source: Refinitiv, CBOE indices

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

Source: London Stock Exchange (Main Market order book and AIM, last value August)

In Exhibit 4 we can see the brief spike in trading activity on the London Stock Exchange Main Market order book in early 2020 at start of the pandemic. This was comparable with the levels seen during the global financial crisis but shorter lived. Activity then subsided before rising again with the invasion of Ukraine. AIM activity rose later than the Main Market, which reflects the rotation highlighted previously, and has fallen sharply this year, accentuated by seasonal factors in the latest readings.

The next two charts show levels of equity issuance on the London Stock Exchange Main and AIM markets since 2010. For both markets, activity strengthened in 2020, driven mainly by further issuance, with IPO numbers restricted by the market background. Fund-raising to support balance sheets played a prominent role for the Main Market in 2020 after the onset of the pandemic, but the subsequent bounce back in new issuance and fund-raising was directed more towards financing M&A and growth. In the current year, activity has been subdued on both markets, particularly following the first quarter. Understandably, uncertainty over the outlook has resulted in much corporate activity being put on hold. Nevertheless, as noted earlier, Cenkos has carried out three transactions in H222 so far.

Exhibit 5: Main Market money raised and new issues

Exhibit 6: AIM money raised and new issues

Source: London Stock Exchange

Source: London Stock Exchange

Exhibit 5: Main Market money raised and new issues

Source: London Stock Exchange

Exhibit 6: AIM money raised and new issues

Source: London Stock Exchange

Cenkos prudently acknowledges that market conditions are likely to remain challenging for the foreseeable future, but remains confident in its business model. In addition to cost discipline, which helps contain fixed costs, its focus on providing a responsive client service through fostering a collaborative and entrepreneurial approach in its teams and maintaining a strong balance sheet is designed to allow it to navigate market fluctuations. As noted earlier, the group has been able to make a modest net addition to its client base against the difficult market background and has been in a position to add to its headcount to support service levels.

Exhibit 7 provides some additional perspective here, showing the rate of transactions per client since 2016. This highlights the probability that a certain number of clients are likely to want to carry out equity-supported deals over time. As would be expected, the number of transactions fluctuates from year to year (the percentage varied between 17% and 35% in the period shown) but activity does sometimes show surprising resilience and has tended to bounce back following a phase of market uncertainty and muted activity. The average deal fee also varies, with the H122 level likely to have been buoyed by the firm’s roles in two IPOs and an introduction.

Exhibit 7: Cenkos transactions per client and average deal fee since 2016

2016

2017

2018

2019

2020

2021

H122

Transactions per client (%)

31

35

28

25

31

34

17

Number of transactions

36

41

32

25

29

34

9

Number of clients

116

117

116

100

94

101

103

Average deal fee (£m)

0.826

1.074

1.023

0.695

0.767

0.800

0.961

Source: Cenkos Securities, Edison Investment Research. Note: Transactions per client for H122 annualised.

Financials

Given the uncertainty over prospective revenues, we do not include estimates in this note. However, it is useful to highlight the impact of the company’s disciplined approach to fixed costs mentioned earlier.

Cenkos reports the percentage of fixed costs covered by non-corporate finance revenues in its full year results (see Exhibit 1) allowing us to track an indicated level of underlying fixed costs. In FY21 these increased by 13% to £18.6m, 24% below the level in 2018, prior to the restructuring programme initiated in FY19. Rounding fixed costs up to £19m and ignoring the accrual of incentive plan costs and any restructuring costs (£0.6m in H122), this would mean annual revenue would probably have to fall to below £20m before an underlying loss was incurred. Alternatively, a return to the historical five-year average revenue of £40m (making an assumption about the level of variable compensation and allowing for fixed costs to rise to £20m) could allow profits to reach £6.1m.

H122 saw a larger cash outflow than in H121 reflecting lower operating cash flow, a higher working capital outflow and higher dividend and own-share purchase payments. Operating cash flow was £0.8m, working capital movements absorbed £13.7m, dividends and own-share purchases totalled £4.2m with other items taking £0.2m resulting in an overall outflow of £17.6m (compared with £8.7m in H121). This left cash at £15.9m. Working capital movements are typically volatile between individual periods for stockbroking firms, reflecting the timing of bonus payments (usually in the first half), fees and changes in market-making positions.

Valuation

As we are not publishing forecasts for Cenkos, we focus on where the valuation stands in terms of the historical price to book multiple and look at the implied ROE based on an ROE/COE model.

Reflecting its exposure to capital markets activity and bias towards small and mid-cap corporates, the share price is down 40% year-to-date (similar to the average for other quoted UK brokers and but a much greater decline than the 23% average for US and European investment bank and advisory firms).

Exhibit 8: 10-year price to book value history

Source: Refinitiv, Edison Investment Research

At a price of 46p the shares trade at a book multiple of around 0.9x, which compares with a 10-year average of 2.1x (see Exhibit 8). While the first half result showed a reported loss the annualised underlying ROE would have been 11.9%. Using an ROE/COE model and assuming long-term growth of 2% and a cost of equity (COE) of 10%, the share price suggests the market assumes an ROE of 9.1%. This seems cautious given the underlying ROE and also compares with the five-year average ROE of 11%, which includes the depressed 2019 result and is based on reported earnings.

Exhibit 9: Financial summary

£000s

2016

2017

2018

2019

2020

2021

Year end 31 December

PROFIT & LOSS

 

 

 

 

 

 

 

Revenue

Corporate finance & placing fees

29,720

44,030

32,734

17,364

22,250

27,184

Corporate broking, research, and commission

10,514

8,222

7,824

6,582

6,175

6,172

Execution

3,509

7,252

4,395

1,970

3,229

3,869

Total revenue

43,743

59,504

44,953

25,916

31,654

37,225

Other income/expense

259

(87)

Administration expenses (ex depreciation)

(38,581)

(49,286)

(41,567)

(24,902)

(28,823)

(32,385)

EBITDA

5,162

10,218

3,386

1,014

3,090

4,753

Depreciation

(182)

(242)

(247)

(899)

(691)

(649)

Operating profit

4,980

9,976

3,139

115

2,399

4,104

Investment revenues

83

23

103

30

(146)

(154)

Profit before tax

5,063

9,999

3,242

145

2,253

3,950

Tax

(1,858)

(1,815)

(805)

(101)

(449)

(552)

Profit after tax, continuing operations

3,205

8,184

2,437

44

1,804

3,398

Discontinued operations

(661)

(973)

0

0

0

0

Profit after tax

2,544

7,211

2,437

44

1,804

3,398

Average number of shares outstanding (m)

54.7

54.7

51.8

51.2

49.2

48.0

EPS continuing operations (p)

5.9

15.0

4.4

0.1

3.7

7.1

Fully diluted EPS (p)

4.6

13.2

4.4

0.1

3.3

6.0

Dividend per share (p)

6.00

9.00

4.50

3.00

3.50

4.25

NAV per share (p)

49.8

56.2

54.0

49.4

54.0

58.3

ROE (%)

10%

25%

9%

0%

7%

13%

Cost/income ratio

88.6%

83.2%

93.0%

99.6%

93.2%

88.7%

Staff costs/Revenue

68.3%

63.7%

64.4%

63.6%

71.4%

68.0%

BALANCE SHEET

 

 

 

 

 

 

 

Non-current assets

625

1,263

1,179

5,611

5,202

5,130

Property, plant and equipment

389

525

558

517

382

398

Other non-current assets

236

738

621

5,094

4,820

4,732

Current assets

62,692

68,492

65,333

40,821

51,040

51,235

Other current assets inc Investments - long positions

13,811

10,615

12,648

8,973

5,312

7,231

Cash

23,795

36,829

33,635

18,333

32,735

33,457

Debtors and other

25,086

21,048

19,050

13,515

12,993

10,547

Current liabilities

(35,254)

(39,641)

(38,658)

(16,555)

(25,531)

(24,942)

Other current liabilities inc short positions

(2,694)

(3,341)

(6,018)

(1,840)

(1,011)

(1,915)

Other current liabilities

(32,560)

(36,300)

(32,640)

(14,715)

(24,520)

(23,027)

Non-current liabilities

(880)

(366)

(263)

(5,219)

(5,086)

(4,436)

Net assets

27,183

29,748

27,591

24,658

25,625

26,987

CASH FLOW

 

 

 

 

 

 

 

Operating cash flow

(465)

6,917

3,168

(1,818)

5,474

5,853

Working capital and other items

(1,387)

13,490

1,558

(9,051)

11,636

1,521

Tax paid

(2,533)

(1,334)

(1,664)

(351)

(99)

(783)

Net cash from operating items

(4,385)

19,073

3,062

(11,220)

17,011

6,591

Fixed asset investment

(272)

(378)

(280)

(197)

(41)

(150)

Acquisitions/disposals

0

0

0

(140)

0

0

Other investing activities

93

23

90

90

24

4

Share (purchase)/issuance

(438)

(549)

(2,353)

(1,277)

(1,960)

(3,067)

Ordinary dividends

(4,367)

(5,201)

(3,573)

(2,485)

(1,027)

(1,922)

Other financing

58

66

62

(73)

395

(734)

Net cash flow

(9,311)

13,034

(2,992)

(15,302)

14,402

722

Opening net (debt)/cash

33,106

23,795

36,627

33,635

18,333

32,735

Closing net (debt)/cash

23,795

36,829*

33,635

18,333

32,735

33,457

Source: Cenkos Securities, Edison Investment Research. Note: *A change in accounting policy relating to EBT and SIP in 2019 was applied retrospectively to 2018 and results in a small mismatch between closing net cash in 2017 and opening net cash in 2018.

Contact details

Revenue by geography

6. 7. 8. Tokenhouse Yard
London
EC2R 7AS
United Kingdom
+44 (0)20 7397 8900
www.cenkos.com

Contact details

6. 7. 8. Tokenhouse Yard
London
EC2R 7AS
United Kingdom
+44 (0)20 7397 8900
www.cenkos.com

Revenue by geography

Management team

Non-executive chairman: Lisa Gordon

Chief executive: Julian Morse

Lisa Gordon was appointed as a non-executive director and chairman in June 2020. With more than 25 years of executive and non-executive board experience she is also a non-executive director at AIM-listed Alpha FX, at M&C Saatchi and Magic Light Pictures. Previously she was a founding director of Local World, COO at Yattendon, a private conglomerate, and director of corporate development at Chrysalis. Her early career was as an investment analyst at County NatWest Securities.

Appointed as an executive director in May 2020 and as CEO in May 2021, Julian Morse was head of the growth companies team from 2016 and is one of the founding members of the team, having joined in 2006. Previously a director at Beeson Gregory and Evolution Securities, Morse has over 25 years’ experience in the City, where he has advised and raised equity in IPOs and secondary issues for a wide range of companies across many sectors.

Executive director: Jeremy Osler

Non-executive director: Andrew Boorman

Jeremy Osler was appointed as an executive director in May 2021. He is co-head of corporate finance and acts as general counsel. Osler joined Cenkos in 2016 and has over 20 years of experience in corporate finance in many sectors including both equity capital markets and M&A advisory with roles at J. P. Morgan, Hannam and Partners and as a corporate lawyer at Ashurst.

Andrew Boorman was appointed as a non-executive director in November 2017. From 2013 he acted as a consultant adviser to the boards of a number of financial services businesses with an emphasis on strategic human resource issues including governance, risk management and remuneration. Previously he held a number of senior roles at Henderson Group over 10 years including MD corporate services and group HR director.

Non-executive director: Jeremy Miller

Jeremy Miller was appointed to the board as a non-executive director in July 2019. With 30 years’ experience in investment banking, he has held senior roles at Centerview Partners, Simon Robertson Associates, Dresdner Kleinwort Wasserstein and James Capel. A qualified chartered accountant, he has been seconded to The Takeover Panel. Previously a non-executive director at Countryside Properties, he is chairman of The National Merchant Buying Society, one of the UK’s largest co-operative societies and a non-executive director of CPP Group and This Land.

Management team

Non-executive chairman: Lisa Gordon

Lisa Gordon was appointed as a non-executive director and chairman in June 2020. With more than 25 years of executive and non-executive board experience she is also a non-executive director at AIM-listed Alpha FX, at M&C Saatchi and Magic Light Pictures. Previously she was a founding director of Local World, COO at Yattendon, a private conglomerate, and director of corporate development at Chrysalis. Her early career was as an investment analyst at County NatWest Securities.

Chief executive: Julian Morse

Appointed as an executive director in May 2020 and as CEO in May 2021, Julian Morse was head of the growth companies team from 2016 and is one of the founding members of the team, having joined in 2006. Previously a director at Beeson Gregory and Evolution Securities, Morse has over 25 years’ experience in the City, where he has advised and raised equity in IPOs and secondary issues for a wide range of companies across many sectors.

Executive director: Jeremy Osler

Jeremy Osler was appointed as an executive director in May 2021. He is co-head of corporate finance and acts as general counsel. Osler joined Cenkos in 2016 and has over 20 years of experience in corporate finance in many sectors including both equity capital markets and M&A advisory with roles at J. P. Morgan, Hannam and Partners and as a corporate lawyer at Ashurst.

Non-executive director: Andrew Boorman

Andrew Boorman was appointed as a non-executive director in November 2017. From 2013 he acted as a consultant adviser to the boards of a number of financial services businesses with an emphasis on strategic human resource issues including governance, risk management and remuneration. Previously he held a number of senior roles at Henderson Group over 10 years including MD corporate services and group HR director.

Non-executive director: Jeremy Miller

Jeremy Miller was appointed to the board as a non-executive director in July 2019. With 30 years’ experience in investment banking, he has held senior roles at Centerview Partners, Simon Robertson Associates, Dresdner Kleinwort Wasserstein and James Capel. A qualified chartered accountant, he has been seconded to The Takeover Panel. Previously a non-executive director at Countryside Properties, he is chairman of The National Merchant Buying Society, one of the UK’s largest co-operative societies and a non-executive director of CPP Group and This Land.

Principal shareholders

(%)

Andrew Stewart (deceased)

10.0

Cannacord Genuity Group Inc.

9.0

Jim Durkin

8.4

Nicholas Wells

6.3

Premier Miton

2.1


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This report has been commissioned by Cenkos Securities and prepared and issued by Edison, in consideration of a fee payable by Cenkos Securities. 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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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 Cenkos Securities and prepared and issued by Edison, in consideration of a fee payable by Cenkos Securities. 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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CentralNic Group — Acquisition of Aporia for up to US$19m

As part of a broader vertical integration strategy, disintermediating its value chain to create a more efficient ecosystem, CentralNic has announced the acquisition of MA Aporia, a media and native advertising company. CentralNic is paying an initial cash consideration of US$11.2m, together with performance payments of up to US$7.8m for FY22–24. This implies an initial FY21 EV/EBITDA multiple of 5.6x. The acquisition will be immediately earnings accretive. As Aporia is already an exclusive supplier to CentralNic, the transaction will increase CentralNic’s margins but will have no impact on revenue. Aporia generated FY21 revenue of US$35m, gross profit of US$3.5m and EBITDA of US$2.0m. Despite CentralNic’s continuing momentum (H122 organic growth of 62%), the group trades on c 5.9x FY22 EV/EBITDA and a P/E of 8.0x.

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