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Research: Financials
Trading for Numis in the first four months of FY21 has been strong, even though the fund raising associated with the onset of the pandemic has subsided. All areas are reported to be trading well with both IPO and advisory revenues picking up from previously subdued levels. With the deal pipeline encouraging for the remainder of H121, we have increased our FY21 revenue and pre-tax profit estimates by 9% and 30% respectively.
Written by
Numis |
High activity levels across the business |
AGM trading update |
Financial services |
9 February 2021 |
Share price performance
Business description
Next events
Analysts
Numis is a research client of Edison Investment Research Limited |
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Trading for Numis in the first four months of FY21 has been strong, even though the fund raising associated with the onset of the pandemic has subsided. All areas are reported to be trading well with both IPO and advisory revenues picking up from previously subdued levels. With the deal pipeline encouraging for the remainder of H121, we have increased our FY21 revenue and pre-tax profit estimates by 9% and 30% respectively.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/18 |
136.0 |
31.6 |
23.0 |
12.0 |
14.8 |
3.5 |
09/19 |
111.6 |
12.4 |
8.1 |
12.0 |
42.1 |
3.5 |
09/20 |
154.9 |
37.1 |
26.7 |
12.0 |
12.8 |
3.5 |
09/21e |
162.0 |
37.3 |
26.1 |
12.0 |
13.1 |
3.5 |
Note: *PBT and EPS are on a reported basis and EPS is fully diluted.
4M21 update shows more balanced strength
Numis reports that revenues in the first four months of FY21 (to end January) were c 50% ahead of the prior year, despite the absence of COVID-19-related fund raising. The strength was more broadly based than seen in H220, with all areas of the business performing well. A number of high-value public and private capital markets transactions in the technology and digital consumer sectors contributed to the performance, pushing up average deal fees. Equities has benefited from increased market confidence with strength in both institutional and trading income. Numis notes that it has not seen a material impact from Brexit, but is planning to open an office in the EU in the next 12 months to provide market access to support the strategic development of the business over the long term.
Estimates increased significantly
Reflecting the 50% revenue progress indicated for 4M21 compared with the prior year, we have increased our full-year revenue estimate by 9% to £162m (+5% versus FY20), still assuming some normalisation of activity levels in the second half (revenue assumption c £70m). This could prove conservative, but the emergence of virus variants has underlined the uncertainty that surrounds the pace at which restrictions are eased and hence the level of economic activity and market confidence. Reflecting operational gearing, our FY21 pre-tax profit estimate increases by 30% to £37.3m.
Valuation
At 342p the shares trade on a price to book value of 2.3x, modestly above the 10-year average of 2.0x and, based on a ROE/COE model, the share price would be consistent with an assumed ROE of 17.7%, slightly below the historical five-year average of 18% and our estimate for FY21 of 18.6%.
Trading background
As shown below, both the Main and AIM London Stock Exchange markets saw an increase in the level of total issuance and, to a lesser extent the IPO count in calendar year 2020 compared with 2019. COVID-19-related issuance to strengthen balance sheets contributed to the level of further issuance but more recently IPO and acquisition and growth-related fund raising has picked up.
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Exhibit 1: LSE main market issuance and IPO count |
Exhibit 2: LSE AIM issuance and new issue count |
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Source: London Stock Exchange. Note: calendar years. |
Source: London Stock Exchange. Note: calendar years. |
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Exhibit 1: LSE main market issuance and IPO count |
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Source: London Stock Exchange. Note: calendar years. |
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Exhibit 2: LSE AIM issuance and new issue count |
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Source: London Stock Exchange. Note: calendar years. |
Exhibit 3 illustrates the range of Numis’s transactions in 4M21. A return to greater IPO activity was evident in the period as market conditions became more favourable and as a result of work undertaken previously to build the quality of the client base.
Exhibit 3: Numis – selected transactions since end September 2020
Company |
Date |
Role |
Transaction |
Money raised/ IPO value (£m) |
Cazoo |
Oct-20 |
Joint placement agent |
Private fund raise |
240 |
Draper Esprit |
Oct-20 |
NOMAD, Joint global coordinator, bookrunner and broker |
Placing |
110 |
Aquila Capital |
Oct-20 |
Broker, adviser and joint bookrunner |
Placing |
116 |
Merian Chrysalis |
Oct-20 |
Joint bookrunner |
IPO |
95 |
Synairgen |
Oct-20 |
Joint broker and bookrunner |
Placing and open offer |
87 |
Victoria |
Oct-20 |
Debt adviser |
Preferred equity investment |
175 |
Aveva |
Oct-20 |
Joint global coordinator, bookrunner and broker; sole sponsor |
Rights issue to finance acquisition |
2,800 |
Waterfall Asset Management |
Nov-20 |
Financial adviser |
M&A |
639 |
Future |
Nov-20 |
Sponsor, joint financial adviser and broker |
M&A |
594 |
Pets at Home |
Nov-20 |
Sole financial adviser |
M&A |
100 |
Electrocomponents |
Dec-20 |
Joint broker and bookrunner |
Placing |
180 |
Bytes Technology |
Dec-20 |
Sole sponsor, financial and debt adviser, global coordinator and bookrunner |
IPO |
647 |
AJ Bell |
Dec-20 |
Sole broker |
Block trade |
25 |
Clipper Logistics |
Jan-21 |
Joint bookrunner |
Block trade |
62 |
Bambuser |
Jan-21 |
Joint global coordinator and bookrunner |
Placing |
52 |
VH Global Sustainable Energy Opportunities |
Jan-21 |
Sponsor and sole bookrunner |
IPO |
243 |
HSS Hire |
Jan-21 |
Sponsor and nominated adviser |
Placing and open offer |
53 |
Scapa |
Jan-21 |
Joint corporate broker and nominated adviser |
M&A |
403 |
Moonpig |
Jan-21 |
Joint bookrunner |
IPO |
1197 |
Foresight |
Feb-21 |
Sole sponsor, joint global coordinator and bookrunner |
IPO |
455 |
Knights |
Feb-21 |
Sole bookrunner |
Block trade |
62 |
Auto1 |
Feb-21 |
Bookrunner |
IPO |
6,690 |
Auction Technology |
Expected March 21 |
Sole sponsor and joint global coordinator and bookrunner |
Expected IPO |
Expected |
Source: Numis, Edison Investment Research
The strengthening in markets since a low point in early 2020 is demonstrated in Exhibit 4, with both CBOE all companies and small companies indices well above their lows. Trading activity levels on the London Stock Exchange order book have fluctuated since early 2020 and while recently well below the elevated levels seen as the pandemic impacted initially remain close to the average level recorded over the period shown in Exhibit 5.
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Exhibit 4: All-companies and small cap indices |
Exhibit 5: LSE order book, average daily value traded |
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Source: Refinitiv. Note: CBOE UK net-return indices. |
Source: London Stock Exchange (Main Market) |
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Exhibit 4: All-companies and small cap indices |
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Source: Refinitiv. Note: CBOE UK net-return indices. |
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Exhibit 5: LSE order book, average daily value traded |
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Source: London Stock Exchange (Main Market) |
Financials
Exhibit 6 shows an analysis of our revenue assumptions for FY21e with prior year comparatives. As noted earlier, the overall increase in our estimate is 9% and, with the main increase in the capital markets segment, we have also allowed for higher advisory and trading gain figures than previously. While we have not included a revised scenario analysis at this stage, it is appropriate to add a reminder that there is still considerable uncertainty over revenues in any particular period. An indication of the sensitivity of profitability to changes in revenue can be seen in the scenario analysis included in our last note in December 2020.
Exhibit 6: Revenue analysis
£000s |
2018 |
2019 |
2020 |
2021e |
Net trading gains |
9,594 |
4,008 |
16,003 |
13,000 |
Institutional income |
37,866 |
33,317 |
37,192 |
36,500 |
Equities |
47,460 |
37,325 |
53,195 |
49,500 |
Corporate retainers |
12,430 |
13,357 |
13,536 |
12,000 |
Advisory |
17,335 |
12,576 |
11,146 |
18,000 |
Capital markets |
58,822 |
48,352 |
77,022 |
82,500 |
Investment banking |
88,587 |
74,285 |
101,704 |
112,500 |
Total revenue |
136,047 |
111,610 |
154,899 |
162,000 |
Source: Edison Investment Research
Changes in the key numbers from our forecast are shown below, with further detail from the new forecast given in the financial summary.
Exhibit 7: Estimate changes
Revenue (£m) |
PBT (£m) |
Fully diluted EPS (p) |
DPS (p) |
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Old |
New |
Change |
Old |
New |
Change |
Old |
New |
Change |
Old |
New |
Change |
|
09/21e |
149.0 |
162.0 |
8.7% |
28.8 |
37.3 |
29.6% |
20.2 |
26.1 |
29.6% |
12.0 |
12.0 |
0.0% |
Source: Edison Investment Research
Valuation
Below we include an updated chart showing the 10-year history of the price to book ratio for Numis. The current value is 2.3x modestly above the 10-year average of 2.0x. Using a ROE/COE model to infer the ROE required to match the current share price (342p) gives a value of 17.7%. This is slightly below the five-year historical average of 18% and our estimate for the current year of 18.6%.
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Exhibit 8: 10-year history of the price to book value ratio for Numis |
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Source: Refinitiv, Edison Investment Research |
Exhibit 9: Financial summary
£'000s |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021e |
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Year end 30 September |
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PROFIT & LOSS |
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Revenue |
|
|
97,985 |
112,335 |
130,095 |
136,047 |
111,610 |
154,899 |
162,000 |
Administrative expenses (excl. amortisation and depreciation) |
(65,018) |
(76,120) |
(83,626) |
(94,603) |
(85,432) |
(105,327) |
(110,755) |
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Share based payment |
(4,104) |
(6,229) |
(10,454) |
(10,583) |
(10,914) |
(9,961) |
(9,000) |
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EBITDA |
|
|
28,863 |
29,986 |
36,015 |
30,861 |
15,264 |
39,611 |
42,245 |
Depreciation |
|
|
(882) |
(1,126) |
(1,226) |
(1,113) |
(1,124) |
(3,016) |
(5,293) |
Amortisation |
(111) |
(125) |
(89) |
(49) |
(44) |
(105) |
(110) |
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Operating Profit |
|
|
27,870 |
28,735 |
34,700 |
29,699 |
14,096 |
36,490 |
36,842 |
Net finance income |
190 |
37 |
188 |
212 |
550 |
263 |
470 |
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Other operating income |
(1,978) |
3,759 |
3,431 |
1,733 |
(2,210) |
310 |
0 |
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Profit before tax |
|
|
26,082 |
32,531 |
38,319 |
31,644 |
12,436 |
37,063 |
37,312 |
Tax |
(4,533) |
(6,132) |
(7,942) |
(4,967) |
(3,110) |
(5,713) |
(7,089) |
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Profit after tax (FRS 3) |
|
|
21,549 |
26,399 |
30,377 |
26,677 |
9,326 |
31,350 |
30,223 |
Average diluted number of shares outstanding (m) |
117.6 |
118.0 |
117.2 |
115.8 |
114.9 |
117.3 |
115.6 |
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EPS - basic (p) |
19.5 |
23.5 |
27.4 |
25.1 |
8.8 |
29.9 |
28.5 |
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EPS - diluted (p) |
|
|
18.3 |
22.4 |
25.9 |
23.0 |
8.1 |
26.7 |
26.1 |
Dividend per share (p) |
11.50 |
12.00 |
12.00 |
12.00 |
12.00 |
12.00 |
12.00 |
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NAV per share (p) |
102.0 |
113.5 |
125.0 |
135.0 |
131.3 |
149.8 |
150.8 |
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ROE (%) |
19% |
22% |
23% |
19% |
6.6% |
21.2% |
18.6% |
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EBITDA margin (%) |
29.5% |
26.7% |
27.7% |
22.7% |
13.7% |
25.6% |
26.1% |
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Operating margin (%) |
28.4% |
25.6% |
26.7% |
21.8% |
12.6% |
23.6% |
22.7% |
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BALANCE SHEET |
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Fixed assets |
|
|
6,724 |
5,522 |
6,147 |
8,215 |
6,832 |
12,639 |
43,986 |
Current assets |
|
|
279,114 |
312,462 |
407,850 |
533,033 |
326,641 |
509,034 |
514,427 |
Total assets |
|
|
285,838 |
317,984 |
413,997 |
541,248 |
333,473 |
521,673 |
558,413 |
Current liabilities |
|
|
(170,319) |
(188,895) |
(280,371) |
(398,112) |
(195,319) |
(361,397) |
(362,747) |
Long term liabilities |
0 |
(12) |
0 |
0 |
0 |
(2,643) |
(27,523) |
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Net assets |
|
|
115,519 |
129,077 |
133,626 |
143,136 |
138,154 |
157,633 |
168,143 |
CASH FLOW |
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Operating cash flow |
|
|
6,467 |
48,735 |
43,369 |
45,830 |
(2,748) |
65,953 |
43,486 |
Net cash from investing activities |
(3,632) |
84 |
(198) |
(1,014) |
(77) |
(474) |
(7,260) |
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Net cash from (used in) financing |
(17,510) |
(19,580) |
(36,359) |
(29,035) |
(24,646) |
(24,451) |
(30,833) |
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Net cash flow |
|
|
(14,675) |
29,239 |
6,812 |
15,781 |
(27,471) |
41,028 |
5,393 |
Opening net (cash)/debt |
|
|
(74,518) |
(59,591) |
(89,002) |
(95,852) |
(111,673) |
(84,202) |
(125,217) |
FX effect |
|
|
(252) |
172 |
38 |
40 |
0 |
(13) |
0 |
Closing net (cash)/debt |
|
|
(59,591) |
(89,002) |
(95,852) |
(111,673) |
(84,202) |
(125,217) |
(130,610) |
Source: Company data, Edison Investment Research
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Research: Investment Companies
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