Share’s third quarter update confirmed the positive trends reported in August, with further market share gains and continuing work on its digital transformation providing evidence of the fruits of the investment already made and signalling continued measures to improve the customer experience to underpin further, profit-enhancing growth.
Written by
Share |
Making good progress |
Q3 trading update |
Financial services |
27 October 2017 |
Share price performance
Business description
Next events
Analyst
Share is a research client of Edison Investment Research Limited |
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Share’s third quarter update confirmed the positive trends reported in August, with further market share gains and continuing work on its digital transformation providing evidence of the fruits of the investment already made and signalling continued measures to improve the customer experience to underpin further, profit-enhancing growth.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
14.1 |
0.6 |
0.40 |
0.74 |
65.0 |
2.8 |
12/16 |
14.6 |
0.0 |
0.00 |
0.25 |
N/A |
1.0 |
12/17e |
18.0 |
0.5 |
0.29 |
0.30 |
89.7 |
1.2 |
12/18e |
19.0 |
0.8 |
0.43 |
0.50 |
60.5 |
1.9 |
Note: *PBT and EPS are normalised, excluding exceptional items and share-based payments.
Strong revenues and market share
Share’s Q3 update indicated that trading has been in line with its own expectations, upgraded following the half year results announcement in August. Revenues, excluding interest, were up 29% compared with Q316 led by commission revenue. This was up 54% in the period, benefiting from the full inclusion of Computershare services in the quarter, including certificated and nominee dealing. Market share of revenue (ex-interest) against a Compeer-collected peer group has shown a marked increase, standing at 13.9% for the quarter against 10.0% in Q316. Assets under administration at the end of the period stood at £4.5bn, up 24% y-o-y or 6% q-o-q. An encouraging milestone in the continuing digital investment programme was the addition of functionality to The Share Centre’s app this month allowing clients to fund their accounts and trade within the app. (See Exhibits 1 and 2 overleaf for charts providing an analysis of revenue changes and market share history.)
Outlook
The UK equity market has experienced a period of significant strength since early 2016 and recent volatility has been subdued, so there is a risk of correction against an uncertain macro background. Indeed, Share notes that peer trading volumes in Q3 were down 6% y-o-y (its own volumes were up 4%) and investor sentiment appears to have softened somewhat (Exhibit 4). On a longer view, Share’s focus on customer experience, investment in IT and flat fee structure should mean it is well placed to retain and extend its market share gains through market cycles.
Valuation
A DCF valuation allows us to take account of near-term muted profitability while capturing the potential gains from operational gearing and growing scale. Our estimates have not changed since our last note in September and therefore, with other assumptions as before, our indicative DCF valuation is also unchanged at 30.5p.
Industry developments and further background
Two interesting announcements have come from competitor, Interactive Investor (II). The first related to the new fee structure it will adopt following its takeover of the TD Direct platform. The new fee basis includes a flat fee, as at The Share Centre, with no percentage platform fee for holding funds as at TD Direct, but is slightly higher than II’s previous tariff (£90 per annum versus £80 with the dealing cost (£10) unchanged or £6 for frequent traders versus £5). From a Share perspective this would appear to be neutral or encouraging in that the enlarged company has not chosen to be more aggressive with its pricing. The second announcement was the purchase of Trustnet Direct’s platform, which II already runs on a white label basis. II has also reached agreements with other partners that white label II’s platform to transfer customers to the II brand. The partners include Telegraph Investor, The Motley Fool, and SharePrice. This can be seen as increasing competitive pressure in terms of brand profile and scale, but it will be difficult to separate this effect from other factors that are likely to come into play.
Exhibit 1 shows the y-o-y percentage changes in revenue for Share and a Compeer-collected peer group.1 The jump in interest income for Share follows a period of decline and primarily reflected the Direction from the FCA allowing The Share Centre to deposit up to 60% of client money balances for up to 95 days. Exhibit 2 highlights the upward trend in Share’s revenue market share.
Alliance Trust Savings, Barclays Stockbrokers, Equiniti, Halifax Share Dealing (Lloyds Bank), HSBC Stockbrokers, Saga Personal Finance, Selftrade and TD Direct Investing. Industry leader Hargreaves Lansdown is excluded because it does not submit monthly information to Compeer.
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Exhibit 1: Q3 % changes in revenue, SHRE and peers |
Exhibit 2: Share plc revenue market share progress |
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Source: Share plc, Compeer. Note: Versus Q316. |
Source: Share plc, Compeer |
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Exhibit 1: Q3 % changes in revenue, SHRE and peers |
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Source: Share plc, Compeer. Note: Versus Q316. |
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Exhibit 2: Share plc revenue market share progress |
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Source: Share plc, Compeer |
The next two charts show trends in the UK equity market, retail fund sales and investor confidence.
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Exhibit 3: FTSE All-Share and FTSE 100 Volatility |
Exhibit 4: Fund sales and investor sentiment index |
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Source: Thomson Datastream |
Source: Investment Association, Lloyds Bank |
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Exhibit 3: FTSE All-Share and FTSE 100 Volatility |
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Source: Thomson Datastream |
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Exhibit 4: Fund sales and investor sentiment index |
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Source: Investment Association, Lloyds Bank |
Exhibit 5: Financial summary
£000 |
2014 |
2015 |
2016 |
2017e |
2018e |
|
Year end 31 December |
||||||
PROFIT & LOSS |
||||||
Account fees |
6,610 |
6,400 |
6,784 |
7,530 |
7,831 |
|
Dealing Commissions |
6,610 |
6,400 |
7,040 |
9,786 |
10,373 |
|
Interest and other income |
1,800 |
1,250 |
786 |
711 |
769 |
|
Revenue |
|
15,042 |
14,050 |
14,610 |
18,027 |
18,973 |
Cost of Sales (exc amortisation and depreciation) |
(14,579) |
(14,812) |
(15,727) |
(18,003) |
(18,725) |
|
EBITDA |
|
463 |
(762) |
(1,117) |
23 |
248 |
Depreciation |
|
(104) |
(111) |
(121) |
(131) |
(150) |
Amortisation |
(11) |
(21) |
(108) |
(390) |
(400) |
|
Operating profit (pre-exceptional) |
|
348 |
(894) |
(1,346) |
(498) |
(302) |
Exceptionals |
0 |
0 |
0 |
900 |
0 |
|
Other |
60 |
1,479 |
2,119 |
67 |
0 |
|
Investment revenues |
308 |
276 |
248 |
220 |
198 |
|
Profit Before Tax (FRS 3) |
|
716 |
861 |
1,021 |
689 |
(104) |
Profit Before Tax (norm) |
|
1,615 |
584 |
(46) |
516 |
768 |
Tax |
(109) |
(196) |
(284) |
(133) |
0 |
|
Profit After Tax (FRS 3) |
|
607 |
665 |
737 |
557 |
(104) |
Profit After Tax (norm) |
|
1,416 |
555 |
4 |
409 |
602 |
Average Number of Shares Outstanding (m) - exc treasury |
143.5 |
139.2 |
139.3 |
139.7 |
139.7 |
|
EPS - normalised (p) |
|
0.99 |
0.40 |
0.00 |
0.29 |
0.43 |
EPS - FRS3 (p) |
|
0.42 |
0.48 |
0.53 |
0.40 |
(0.07) |
Dividend per share (p) |
0.62 |
0.74 |
0.25 |
0.30 |
0.50 |
|
EBITDA Margin (%) |
3.1% |
(5.4%) |
(7.6%) |
0.1% |
1.3% |
|
Normalised operating margin (%) |
8.3% |
2.2% |
(2.0%) |
(3.4%) |
3.0% |
|
BALANCE SHEET |
||||||
Fixed Assets (mainly Investments) |
|
9,405 |
8,083 |
8,341 |
9,753 |
9,903 |
Current Assets |
|
21,316 |
19,716 |
23,883 |
21,980 |
22,509 |
Total Assets |
|
30,721 |
27,799 |
32,224 |
31,733 |
32,412 |
Current Liabilities |
|
(8,450) |
(7,681) |
(13,384) |
(11,830) |
(12,430) |
Long term Liabilities |
(1,594) |
(1,418) |
(1,096) |
(1,158) |
(1,158) |
|
Net Assets |
|
20,677 |
18,700 |
17,744 |
18,745 |
18,824 |
CASH FLOW |
||||||
Operating Cash Flow |
|
199 |
(2,104) |
492 |
1,092 |
250 |
Net cash from investing activities |
(434) |
1,990 |
483 |
(1,495) |
(502) |
|
Net cash from (used in) financing |
(736) |
(878) |
(1,217) |
(590) |
(419) |
|
Net Cash Flow |
|
(971) |
(992) |
(242) |
(993) |
(671) |
Opening net (debt)/cash |
|
13,626 |
12,655 |
11,663 |
11,421 |
10,428 |
Closing net (debt)/cash |
|
12,655 |
11,663 |
11,421 |
10,428 |
9,757 |
Source: Company accounts, Edison Investment Research
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Research: TMT
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