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Research: Financials
Numis’s strong third quarter reflects both a favourable market background and its strategy of improving the quality of its client base and investing in talent. Market fluctuations and seasonality are set to influence near-term revenue trends, but moves to strengthen the franchise, including developing its advisory and private markets activities and expanding the equity capital markets offering outside the UK, should diversify revenues and help support longer-term growth.
Numis Corporation |
Positive trading continues |
Q321 trading update |
Financial services |
14 July 2021 |
Share price performance
Business description
Next events
Analyst
Numis Corporation is a research client of Edison Investment Research Limited |
Numis’s strong third quarter reflects both a favourable market background and its strategy of improving the quality of its client base and investing in talent. Market fluctuations and seasonality are set to influence near-term revenue trends, but moves to strengthen the franchise, including developing its advisory and private markets activities and expanding the equity capital markets offering outside the UK, should diversify revenues and help support longer-term growth.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
||||||
09/18 |
136.0 |
31.6 |
23.0 |
12.0 |
16.2 |
3.2 |
||||||
09/19 |
111.6 |
12.4 |
8.1 |
12.0 |
46.1 |
3.2 |
||||||
09/20 |
154.9 |
37.1 |
26.7 |
12.0 |
14.0 |
3.2 |
||||||
09/21e |
208.1 |
62.0 |
41.8 |
12.0 |
8.9 |
3.2 |
Note: *PBT and EPS are on a reported basis and EPS is fully diluted.
Q321 update signals continued strong trading
Numis has reported a further strong quarter in the period to end June with revenue of over £50m, only slightly below the H121 run rate (nearly £58m). In addition to favourable market conditions, Numis is seeing benefits across Investment Banking and Equities activities from its investment in staff and focus on enhancing the quality of its client base. Further staff additions to support the growth in the franchise are taking place in the second half. IPOs made a strong contribution in the quarter, but the group also notes that its M&A advisory and private markets (Growth Capital Solutions) businesses are making a significant contribution and have good longer-term potential to expand. Equities have seen some easing in activity levels following a very strong Q221, but the business has continued to gain market share and the trading book performance has been positive.
Outlook and estimate increase
Numis indicates that the transaction pipeline for the rest of FY21 and into next year is very strong, although it expects Q421 to be seasonally quieter. Additionally, we note that pandemic and economic developments remain a source of uncertainty. We have adjusted our revenue estimate to reflect strong Q321 trading but have assumed some seasonal softening in Q421. This results in an increase in our revenue estimate for FY21 of nearly 6% and a 13% increase in EPS.
Valuation
The shares trade on P/E multiples in line with or below those of the average for US and European investment banks and advisory firms. At a price to book ratio of nearly 2.3x, they trade above the 10-year average of 2.0x, but at a share price of 374p a ROE/COE model implies an assumed return on equity (ROE) of just below the 18% five-year average return (and well below the 28% we estimate for FY21).
Background and estimate changes
To provide background we have updated issuance data charts (new and further) for the London Stock Exchange Main and AIM markets (Exhibits 1 and 2). For the three months to end June, Main Market total issuance was down 56% compared with the exceptionally strong, pandemic influenced, prior year period, while money raised was up 22% from the March-end quarter. As can be seen, AIM enjoyed an especially strong period in June, with total issuance for calendar Q2 up 15% compared with the prior year period and 41% ahead sequentially.
Exhibit 1: LSE Main Market issuance (money raised) |
Exhibit 2: LSE AIM issuance (money raised) |
Source: London Stock Exchange |
Source: London Stock Exchange |
Exhibit 1: LSE Main Market issuance (money raised) |
Source: London Stock Exchange |
Exhibit 2: LSE AIM issuance (money raised) |
Source: London Stock Exchange |
The next chart shows the daily value traded on the London Stock Exchange order book. This shows the relatively short-lived spike in trading volumes in the first half of last year following the arrival of the pandemic. Subsequently activity subsided, but more recently has returned to the range seen in prior years.
Exhibit 3: LSE order book, average daily value traded |
Source: London Stock Exchange (Main Market) |
Exhibit 4 shows selected Numis transactions from the second half to date, continuing to show a range of mandates, as in the first half (see our note in May following the H121 results). As mentioned earlier, Numis sees a strong pipeline for the balance of the year and into FY22, although delivery will, as always, depend on market conditions and seasonal factors.
Exhibit 4: Numis – selected transactions in H221 to date
Company |
Date |
Role |
Transaction |
Money raised/ value (£m) |
Keywords Studio |
Apr-21 |
Sole bookrunner |
Placing |
84 |
JTC |
Apr-21 |
Joint bookrunner and corporate broker |
Placing |
66 |
Accsys Technologies |
May-21 |
Nomad, joint broker and financial adviser |
Placing and open offer |
c 31 |
Lyst |
May-21 |
Financial adviser |
Private fund raise |
61 |
Draper Esprit |
Jun-21 |
NOMAD, Joint global coordinator, bookrunner and broker |
Placing |
111 |
Victorian Plumbing |
Jun-21 |
Joint global coordinator |
IPO |
850 |
The Gym Group |
Jul-21 |
Joint bookrunner and corporate broker |
Placing |
31 |
International Public Partnerships |
Jul-21 |
Broker, financial adviser and bookrunner |
Placing |
135 |
Source: Numis, Edison Investment Research
We have adjusted our estimates to reflect the strong Q321 performance reported in the update while allowing for a seasonally quieter final quarter. Exhibit 5 shows a segmental analysis of our revenue assumptions for H221 and FY21 with prior full-year comparatives. Our total revenue estimate for FY21 is increased by nearly 6%.
Exhibit 5: Revenue analysis
£000 |
2018 |
2019 |
2020 |
H121 |
H221e |
2021e |
Net trading gains |
9,594 |
4,008 |
16,003 |
11,507 |
7,493 |
19,000 |
Institutional income |
37,866 |
33,317 |
37,192 |
21,879 |
19,121 |
41,000 |
Equities |
47,460 |
37,325 |
53,195 |
33,386 |
26,614 |
60,000 |
Corporate retainers |
12,430 |
13,357 |
13,536 |
6,293 |
6,290 |
12,583 |
Advisory |
17,335 |
12,576 |
11,146 |
12,428 |
13,572 |
26,000 |
Capital markets |
58,822 |
48,352 |
77,022 |
63,319 |
46,181 |
109,500 |
Investment banking |
88,587 |
74,285 |
101,704 |
82,040 |
66,043 |
148,083 |
Total revenue |
136,047 |
111,610 |
154,899 |
115,426 |
92,657 |
208,083 |
Source: Edison Investment Research
On expenses, the only change we have made is to allow for the signalled increase in staff numbers in the second half, estimating that the year-end headcount is 315 versus 292 at end FY20. FY22 will see the full inclusion of the additional cost.
Changes in the key numbers from our forecasts are shown below, with further detail from the new forecast given in the financial summary table (Exhibit 9). An indication of the sensitivity of profitability to changes in revenue can be seen in the scenario analysis included in our December 2020 note.
Exhibit 6: Estimate changes
Revenue (£m) |
PBT (£m) |
Fully diluted EPS (p) |
DPS (p) |
|||||||||
Old |
New |
Change |
Old |
New |
Change |
Old |
New |
Change |
Old |
New |
Change |
|
09/21e |
196.6 |
208.1 |
5.8% |
55.1 |
62.0 |
12.4% |
37.0 |
41.8 |
13.1% |
12.0 |
12.0 |
0.0% |
Source: Edison Investment Research
Valuation
We have updated our peer comparison table showing UK investment banks/brokers and US and European investment banks and advisory firms in Exhibit 7. Comparison is limited by the fact that other UK companies lack consensus estimates and that there are different reporting points across the peers. Nevertheless, we note that Numis offers a relatively high yield, its P/E ratios are similar to or below the averages for the US investment banks and its ROE (based on the strong H121 period) is high in the range.
Exhibit 7: Peer comparison
Price |
Market cap |
Last reported |
Current P/E |
Yield |
ROE |
Price to book |
|
UK brokers |
|||||||
Numis |
374 |
404 |
14.0 |
8.9 |
3.2 |
36.0 |
2.3 |
Arden Partners |
19 |
6 |
2.7 |
N/A |
0.0 |
N/A |
1.1 |
Cenkos |
81 |
46 |
24.5 |
N/A |
4.3 |
8.0 |
1.5 |
FinnCap |
38 |
67 |
8.5 |
N/A |
4.0 |
29.1 |
2.3 |
WH Ireland |
58 |
36 |
37.2 |
N/A |
0.0 |
7.7 |
3.3 |
UK brokers average |
17.4 |
8.9 |
2.3 |
20.2 |
2.1 |
||
US, European IB and advisory |
|||||||
Bank of America |
40.6 |
348,171 |
21.7 |
13.3 |
1.8 |
6.8 |
1.4 |
Evercore |
136.9 |
6,363 |
14.2 |
11.8 |
1.7 |
43.8 |
4.5 |
Goldman Sachs |
380.5 |
129,280 |
15.4 |
8.3 |
1.3 |
10.2 |
1.4 |
Greenhill |
14.7 |
288 |
10.8 |
9.5 |
1.4 |
N/A |
N/A |
Jefferies Financial |
32.4 |
7,994 |
12.2 |
6.7 |
1.8 |
8.1 |
0.9 |
JP Morgan |
158.0 |
478,286 |
17.8 |
12.0 |
2.3 |
12.0 |
1.9 |
Moelis |
56.0 |
3,707 |
19.2 |
15.9 |
2.5 |
N/A |
6.8 |
Morgan Stanley |
92.8 |
172,570 |
14.1 |
13.4 |
1.5 |
13.3 |
1.8 |
PJT Partners |
72.6 |
2,605 |
14.7 |
15.2 |
0.3 |
N/A |
11.2 |
Stifel Financial |
66.7 |
7,007 |
14.6 |
12.0 |
0.7 |
N/A |
1.9 |
Credit Suisse |
9.2 |
24,538 |
8.7 |
9.7 |
1.1 |
5.9 |
0.5 |
Deutsche Bank |
10.6 |
21,921 |
15.8 |
12.0 |
0.0 |
2.6 |
0.4 |
UBS |
15.1 |
58,124 |
8.4 |
9.0 |
1.1 |
11.5 |
0.9 |
US, European IB and advisory average |
14.4 |
11.4 |
1.3 |
12.7 |
2.8 |
Source: Refinitiv. Note: Priced at 12 July 2021; P/Es are for financial years therefore not all same period end.
The chart below shows a 10-year history of the price to book ratio for Numis. The current value is 2.3x, above the 10-year average of 2.0x. Using an ROE/COE model to infer the ROE required to match the share price (374p) shown gives a value of 17.6%. This is just below the five-year historical average of 18% and markedly lower than our estimate for the current year of 28%. This implies a significant margin for disappointment in prospective results and, it may be argued, does not give sufficient weight to the strengthening in the franchise that has been achieved in recent years.
Exhibit 8: 10-year history of the price to book value ratio for Numis |
Source: Refinitiv, Edison Investment Research |
Exhibit 9: Financial summary
£'000s |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021e |
|||
Year end 30 September |
||||||||||
PROFIT & LOSS |
||||||||||
Revenue |
|
|
97,985 |
112,335 |
130,095 |
136,047 |
111,610 |
154,899 |
208,083 |
|
Administrative expenses (excl. amortisation and depreciation) |
(65,018) |
(76,120) |
(83,626) |
(94,603) |
(85,432) |
(105,327) |
(131,742) |
|||
Share based payment |
(4,104) |
(6,229) |
(10,454) |
(10,583) |
(10,914) |
(9,961) |
(9,000) |
|||
EBITDA |
|
|
28,863 |
29,986 |
36,015 |
30,861 |
15,264 |
39,611 |
67,341 |
|
Depreciation |
|
|
(882) |
(1,126) |
(1,226) |
(1,113) |
(1,124) |
(3,016) |
(5,293) |
|
Amortisation |
(111) |
(125) |
(89) |
(49) |
(44) |
(105) |
(110) |
|||
Operating Profit |
|
|
27,870 |
28,735 |
34,700 |
29,699 |
14,096 |
36,490 |
61,938 |
|
Net finance income |
190 |
37 |
188 |
212 |
550 |
263 |
(1,941) |
|||
Other operating income |
(1,978) |
3,759 |
3,431 |
1,733 |
(2,210) |
310 |
1,974 |
|||
Profit before tax |
|
|
26,082 |
32,531 |
38,319 |
31,644 |
12,436 |
37,063 |
61,971 |
|
Tax |
(4,533) |
(6,132) |
(7,942) |
(4,967) |
(3,110) |
(5,713) |
(13,851) |
|||
Profit after tax (FRS 3) |
|
|
21,549 |
26,399 |
30,377 |
26,677 |
9,326 |
31,350 |
48,120 |
|
Average diluted number of shares outstanding (m) |
117.6 |
118.0 |
117.2 |
115.8 |
114.9 |
117.3 |
115.1 |
|||
EPS - basic (p) |
19.5 |
23.5 |
27.4 |
25.1 |
8.8 |
29.9 |
45.9 |
|||
EPS - diluted (p) |
|
|
18.3 |
22.4 |
25.9 |
23.0 |
8.1 |
26.7 |
41.8 |
|
Dividend per share (p) |
11.50 |
12.00 |
12.00 |
12.00 |
12.00 |
12.00 |
12.00 |
|||
NAV per share (p) |
102.0 |
113.5 |
125.0 |
135.0 |
131.3 |
149.8 |
166.5 |
|||
ROE (%) |
19% |
22% |
23% |
19% |
6.6% |
21.2% |
28.1% |
|||
EBITDA margin (%) |
29.5% |
26.7% |
27.7% |
22.7% |
13.7% |
25.6% |
32.4% |
|||
Operating margin (%) |
28.4% |
25.6% |
26.7% |
21.8% |
12.6% |
23.6% |
29.8% |
|||
BALANCE SHEET |
||||||||||
Fixed assets |
|
|
6,724 |
5,522 |
6,147 |
8,215 |
6,832 |
12,639 |
57,881 |
|
Current assets |
|
|
279,114 |
312,462 |
407,850 |
533,033 |
326,641 |
509,034 |
581,247 |
|
Total assets |
|
|
285,838 |
317,984 |
413,997 |
541,248 |
333,473 |
521,673 |
639,128 |
|
Current liabilities |
|
|
(170,319) |
(188,895) |
(280,371) |
(398,112) |
(195,319) |
(361,397) |
(417,956) |
|
Long term liabilities |
0 |
(12) |
0 |
0 |
0 |
(2,643) |
(36,873) |
|||
Net assets |
|
|
115,519 |
129,077 |
133,626 |
143,136 |
138,154 |
157,633 |
184,299 |
|
CASH FLOW |
||||||||||
Operating cash flow |
|
|
6,467 |
48,735 |
43,369 |
45,830 |
(2,748) |
65,953 |
19,804 |
|
Net cash from investing activities |
(3,632) |
84 |
(198) |
(1,014) |
(77) |
(474) |
(12,816) |
|||
Net cash from (used in) financing |
(17,510) |
(19,580) |
(36,359) |
(29,035) |
(24,646) |
(24,451) |
(35,730) |
|||
Net cash flow |
|
|
(14,675) |
29,239 |
6,812 |
15,781 |
(27,471) |
41,028 |
(28,742) |
|
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) |
27 |
|
Closing net (cash)/debt |
|
|
(59,591) |
(89,002) |
(95,852) |
(111,673) |
(84,202) |
(125,217) |
(96,502) |
Source: Company data, Edison Investment Research
|
|
Research: TMT
Ebiquity’s period-end trading update indicates a good first half performance, with revenues of £32m, up 19% on the prior period. The group has also posted an operating profit – undisclosed but ahead of the £1.0m delivered in H220. The progress is a result of a mix of factors, including new business wins (notably in digital), with some benefit from work deferred from FY20. We leave our forecasts unchanged for now, noting that any revisions at the interims in September are more likely to be on the upside. The share price performance year-to-date has been strong (up 195%), but the valuation remains at a sizeable discount to peers.
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