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Research: Financials
ABC arbitrage group (ABCA) reported net income of €16.5m in FY23, 43% lower than FY22, but in line with market conditions. Financial markets in 2023 were characterised by lower volatility than in the previous three years, affecting ABCA’s volatility-based strategies. At the same time, mergers and acquisitions volume was 30% lower year-on-year, mostly due to higher borrowing costs, limiting acquisition arbitrage opportunities. In 2023, ABCA also had a temporary halt in its activities in digital assets following difficulties in the ecosystem. Looking ahead, ABCA maintains the ambitions laid out in its Springboard 2025 plan, and confirms its intention to pay a minimum dividend of €0.30 per annum, implying a yield of 7.8% on the current share price.
ABC arbitrage |
Results update |
Financials |
28 March 2024 |
Share price performance
Business description
Next event
Analysts
ABC arbitrage is a research client of Edison Investment Research Limited |
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ABC arbitrage group (ABCA) reported net income of €16.5m in FY23, 43% lower than FY22, but in line with market conditions. Financial markets in 2023 were characterised by lower volatility than in the previous three years, affecting ABCA’s volatility-based strategies. At the same time, mergers and acquisitions volume was 30% lower year-on-year, mostly due to higher borrowing costs, limiting acquisition arbitrage opportunities. In 2023, ABCA also had a temporary halt in its activities in digital assets following difficulties in the ecosystem. Looking ahead, ABCA maintains the ambitions laid out in its Springboard 2025 plan, and confirms its intention to pay a minimum dividend of €0.30 per annum, implying a yield of 7.8% on the current share price.
ABCA FY23 results versus Edison forecasts |
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€m |
FY23 |
FY23 Edison |
Versus Edison |
FY22 |
Y-o-y |
Net revenue |
39.3 |
45.6 |
-15% |
61.2 |
-36% |
Net income |
16.5 |
18.1 |
-9% |
29.2 |
-43% |
Earnings/share (€) |
0.28 |
0.30 |
-8% |
0.49 |
-43% |
Return on equity |
11% |
11% |
-0.6pp |
18% |
-7.4pp |
Source: ABC arbitrage, Edison Investment Research
ABCA’s net revenues came in at €39.3m, down 36% y-o-y and below our estimate, stemming from both lower fees earned on third-party assets and lower revenues from managing own capital. The results were below ABCA’s ambitions (return on equity of 11% vs 15% ambition) but broadly in line with 2019 results, which were characterised by similar market conditions. ABCA’s assets under management (AUM) remains broadly stable at €336m (March 2024), reflecting a lack of new third-party capital inflow as ABCA’s strategies were difficult to market successfully in 2023. Nevertheless, the performance of ABCA funds in these adverse conditions was recognised with the 2024 Hedgeweek European Award for Best Multi-Strategy Hedge Fund <US$500m. At the AGM, the board will propose to not pay a final dividend, which implies €0.30 total DPS from FY23 profits and 108% payout ratio (EPS of €0.28).
According to management, in the first three months of 2024 market conditions remained broadly similar to 2023, with below average volatility and corporate actions struggling to pick up. As at March 2024, third-party AUM remains broadly stable. ABCA expects an improvement in its gross revenues, predominantly due to regulatory approval received in early February, allowing it to deploy its expertise in digital assets once again. Management believes that the expected decline in interest rates in 2024, coupled with central banks retaining sizeable balance sheets, may drive markets towards all-time highs despite mounting geopolitical and economic risks, and it plans to maintain its Springboard 2025 plan (for more details see our July 2023 initiation note). Nevertheless, the company is focused on improving profitability in the current unfavourable conditions.
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Research: Consumer
Gym Group has accompanied confirmation of FY23 profit resilience and continued buoyancy (like-for-like revenue up 12% in the first two months of 2024) with a clear commitment ‘to accelerate, not reinvent the wheel.’ The latter is telling with new senior management endorsing Gym Group’s sweet spot as a low-cost operator in the long-term growth market of health and fitness. Its confidence in material scope for enhanced pricing and member acquisition and retention is complemented by expansion targeted at sites with perceived 30% return on invested capital (ROIC) potential (10 to 12 openings in 2024 with c 50 over three years), although the typical two-year profit maturation profile means no quick earnings fix. Improving finances (1.7x leverage) should allow this as well as increasingly important technology investment.