Numis Corporation — Positive trading continues

Numis Corporation (LSE: NUM)

Last close As at 29/02/2024

GBP3.43

0.00 (0.00%)

Market capitalisation

GBP402m

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Research: Financials

Numis Corporation — Positive trading continues

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.

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Financials

Numis Corporation

Positive trading continues

Q321 trading update

Financial services

14 July 2021

Price

374p

Market cap

£403m

Net cash (£m) end-March 2021

97.6

Shares in issue

107.8m

Free float

75%

Code

NUM

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.5)

(4.7)

18.1

Rel (local)

(0.6)

(7.8)

(0.7)

52-week high/low

398p

280p

Business description

Numis Corporation is one of the UK's leading independent investment banking groups, offering a full range of research, execution, equity capital markets, corporate broking and advisory services. It employs c 290 staff in offices in London and New York, and at the end of September 2020 had 188 corporate clients.

Next events

FY21 trading update

End September (estimated)

Analyst

Andrew Mitchell

+44 (0)20 3681 2500

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*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

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
(local)

Market cap
(£m)

Last reported
P/E (x)

Current P/E
(x)

Yield
(%)

ROE
(%)

Price to book
(x)

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


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This report has been commissioned by Numis and prepared and issued by Edison, in consideration of a fee payable by Numis. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Research: TMT

Ebiquity — Building on recovery

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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