Lighthouse has confirmed that it is on course to meet board expectations for EBITDA and pre-tax profit for 2018, continuing the progress it made during the first half of the year. The potential to achieve good long-term growth through meeting the need for financial advice, particularly in the affinity business, remains in place.
Written by
Lighthouse Group |
On course |
Year-end trading update |
Financial services |
11 January 2019 |
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Lighthouse has confirmed that it is on course to meet board expectations for EBITDA and pre-tax profit for 2018, continuing the progress it made during the first half of the year. The potential to achieve good long-term growth through meeting the need for financial advice, particularly in the affinity business, remains in place.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
47.9 |
1.9 |
1.13 |
0.27 |
22.0 |
1.1 |
12/17 |
54.1 |
2.5 |
1.49 |
0.42 |
16.8 |
1.7 |
12/18e |
55.7 |
2.8 |
1.61 |
0.60 |
15.5 |
2.4 |
12/19e |
57.5 |
3.1 |
1.81 |
0.70 |
13.8 |
2.8 |
Note: *EPS are normalised and fully diluted, with tax credits excluded and a standard tax charge applied.
Profits meeting expectations
In its year-end trading update, Lighthouse confirmed that it expects to report EBITDA and profit before tax in line with board expectations. Revenue production per adviser and recurring revenue (over 50% of customer-derived revenue) have continued to increase. Our forecasts are unchanged with 2018 pre-tax profit and EPS expected to increase by 9.5% y-o-y and 8% y-o-y, respectively. Reflecting a strong balance sheet, the interim dividend was stepped up from 0.12p to 0.20p and we are assuming 0.60p for the full year. During the second half, Lighthouse announced a new affinity contract following the merger of two teaching unions (ATL and NUT) to form the National Education Union. While Lighthouse was already preferred supplier of financial advice to the ATL, the NUT added a further 336,000 members and the contract underlined the group’s strong position with affinity groups. A strategic agreement with Tavistock Investments was also reached, which will broaden the Luceo Asset Management product offering and help increase its scale.
Long-term outlook remains appealing
A more volatile market background could have some effect on individuals’ propensity to seek financial advice (both positive and negative), but the key longer-term drivers of demand growth remain in place: an ageing population, and increased choices and responsibility for pension accumulation and decumulation. Lighthouse appears well-placed to address this opportunity with a particular focus on developing business through its affinity relationships.
Valuation: Substantial upside
Lighthouse shares are up by over 25% on a 12-month view, but have corrected by a similar amount since their mid-2018 high. On unchanged estimates, our DCF valuation also remains unchanged at 44p, suggesting substantial potential upside from the current price.
Exhibit 1: Financial summary
Year-end 31 December (£000s) |
2015 |
2016 |
2017 |
2018e |
2019e |
2020e |
Profit and loss |
||||||
National |
16,074 |
15,717 |
19,840 |
21,368 |
23,184 |
24,923 |
Communities |
23,978 |
23,780 |
24,452 |
23,181 |
22,181 |
21,935 |
Wealth Advisory |
8,829 |
8,422 |
9,652 |
10,714 |
11,410 |
11,867 |
Other segments |
0 |
0 |
166 |
409 |
731 |
1,013 |
Total revenue |
48,881 |
47,919 |
54,111 |
55,672 |
57,506 |
59,736 |
Cost of sales |
(34,057) |
(33,452) |
(39,439) |
(40,625) |
(41,551) |
(42,866) |
Gross profit |
14,824 |
14,467 |
14,672 |
15,046 |
15,955 |
16,870 |
Underlying expenses |
(13,214) |
(12,180) |
(11,485) |
(11,530) |
(12,146) |
(12,669) |
Underlying EBITDA |
1,610 |
2,287 |
3,187 |
3,516 |
3,809 |
4,201 |
Share based payment |
0 |
(79) |
(385) |
(385) |
(385) |
(385) |
EBITDA |
1,610 |
2,208 |
2,802 |
3,131 |
3,424 |
3,816 |
Depreciation and amortisation |
(552) |
(299) |
(274) |
(352) |
(334) |
(326) |
Operating profit |
1,058 |
1,909 |
2,528 |
2,779 |
3,091 |
3,489 |
Finance income |
14 |
11 |
3 |
14 |
15 |
20 |
Finance costs |
(206) |
(27) |
(10) |
(32) |
0 |
0 |
Profit before taxation |
866 |
1,893 |
2,521 |
2,761 |
3,106 |
3,509 |
Taxation |
0 |
750 |
200 |
0 |
(590) |
(667) |
Non-controlling interest |
0 |
0 |
0 |
0 |
0 |
0 |
Earnings |
866 |
2,643 |
2,721 |
2,761 |
2,516 |
2,843 |
Adjusted earnings |
866 |
1,514 |
2,036 |
2,236 |
2,516 |
2,843 |
Basic EPS (p) |
0.68 |
2.07 |
2.13 |
2.16 |
1.97 |
2.23 |
Dil EPS (p) |
0.68 |
1.97 |
1.98 |
1.98 |
1.81 |
2.04 |
Adjusted EPS (p) |
0.68 |
1.19 |
1.59 |
1.75 |
1.97 |
2.23 |
Dil adjusted EPS (p) |
0.68 |
1.13 |
1.49 |
1.61 |
1.81 |
2.04 |
Dividends (p) |
0.24 |
0.27 |
0.42 |
0.60 |
0.70 |
0.77 |
Dividend cover - dil adjusted EPS (x) |
2.8 |
4.2 |
3.5 |
2.7 |
2.6 |
2.6 |
EBITDA margin (%) |
3.3 |
4.6 |
5.2 |
5.6 |
6.0 |
6.4 |
Return on equity - adj earnings (%) |
13.8 |
19.5 |
19.7 |
17.3 |
16.5 |
16.0 |
Balance sheet |
||||||
Non-current assets |
6,555 |
7,220 |
7,478 |
7,594 |
7,610 |
7,583 |
Intangible assets |
5,284 |
5,230 |
5,131 |
5,231 |
5,229 |
5,205 |
Property, plant & equipment |
1,271 |
1,240 |
1,397 |
1,412 |
1,431 |
1,428 |
Available for sale investment |
0 |
0 |
0 |
0 |
0 |
0 |
Deferred tax asset |
0 |
750 |
950 |
950 |
950 |
950 |
Current assets |
21,655 |
17,505 |
16,920 |
17,601 |
19,579 |
22,667 |
Trade and other receivables |
13,266 |
9,004 |
8,187 |
8,423 |
9,051 |
9,602 |
Cash and cash equivalents |
8,389 |
8,501 |
8,733 |
9,178 |
10,529 |
13,066 |
Total assets |
28,210 |
24,725 |
24,398 |
25,194 |
27,189 |
30,251 |
Current liabilities |
17,254 |
12,307 |
11,635 |
10,150 |
10,148 |
10,276 |
Borrowings |
34 |
34 |
0 |
0 |
0 |
0 |
Trade and other payables |
10,629 |
9,268 |
8,789 |
8,450 |
8,448 |
8,576 |
Provisions |
6,591 |
3,005 |
2,846 |
1,700 |
1,700 |
1,700 |
Non-current liabilities |
4,395 |
3,454 |
1,076 |
850 |
750 |
750 |
Borrowings |
439 |
405 |
0 |
0 |
0 |
0 |
Provisions |
3,956 |
3,049 |
1,076 |
850 |
750 |
750 |
Total liabilities |
21,649 |
15,761 |
12,711 |
11,000 |
10,898 |
11,026 |
Net assets |
6,561 |
8,964 |
11,687 |
14,194 |
16,291 |
19,224 |
Cash flow |
||||||
Operating profit |
1,058 |
1,909 |
2,528 |
2,779 |
3,091 |
3,489 |
Depreciation and amortisation |
552 |
299 |
274 |
352 |
334 |
326 |
Share-based payments |
0 |
79 |
385 |
385 |
385 |
385 |
Change in receivables, payables |
(2,415) |
2,901 |
338 |
(575) |
(629) |
(423) |
Change in provisions |
2,270 |
(4,493) |
(2,132) |
(1,372) |
(100) |
0 |
Finance costs paid |
(404) |
(27) |
(10) |
(32) |
0 |
0 |
Income taxes refunded/paid |
0 |
0 |
0 |
0 |
(590) |
(667) |
Net cash flow from operating activities |
1,061 |
668 |
1,383 |
1,537 |
2,490 |
3,111 |
Purchase of PPE |
(119) |
(126) |
(307) |
(243) |
(200) |
(180) |
Purchase of intangibles |
(69) |
(88) |
(25) |
(225) |
(150) |
(120) |
Finance income received |
14 |
11 |
3 |
14 |
15 |
20 |
Net cash flow from investing activities |
(174) |
(203) |
(329) |
(454) |
(335) |
(280) |
Dividends paid |
(255) |
(319) |
(383) |
(638) |
(805) |
(294) |
Change in loans |
(1,307) |
(34) |
(439) |
0 |
0 |
0 |
Net cash flow from financing activities |
(1,562) |
(353) |
(822) |
(638) |
(805) |
(294) |
Change in cash |
(675) |
112 |
232 |
445 |
1,351 |
2,537 |
Change in loans/other |
1,505 |
34 |
439 |
0 |
0 |
0 |
Change in net cash |
830 |
146 |
671 |
445 |
1,351 |
2,537 |
Closing net cash |
7,916 |
8,062 |
8,733 |
9,178 |
10,529 |
13,066 |
Source: Lighthouse Group, Edison Investment Research
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Research: Healthcare
Basilea has reported positive interim results from the derazantinib Phase II registration trial in intrahepatic cholangiocarcinoma (iCCA, bile duct cancer). The promising efficacy shown highlights the potential for the product in FGFR-driven solid tumours, an unmet need. Full data are expected to be available once the study has completed (mid-2020). Basilea in-licensed derazantinib from ArQule in April 2018. The asset is a complementary addition to its oncology portfolio and the company now has three diversified, early/mid-stage clinical assets targeting cancer resistance in its portfolio. We anticipate increased investor focus on the oncology strategy at Basilea. We value Basilea at CHF115/share.