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Research: Financials
Following a positive update in July, Numis’s year-end update confirmed that trading remained strong through to the financial year end (September). Both corporate and institutional sides of the business contributed to the outcome and prospectively the company indicates a strong deal pipeline. We have increased our estimate for FY17 to match company guidance but left FY18e revenue and pre-tax profit unchanged at this stage. Continuation of benign market conditions could mean the current year estimate proves conservative, while on a longer view the strength of the franchise Numis has established is a key attraction for investors.
Written by
Numis Corporation |
Positive year-end update |
FY17 trading update |
Financial services |
5 October 2017 |
Share price performance
Business description
Next events
Analysts
Numis Corporation is a research client of Edison Investment Research Limited |
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Following a positive update in July, Numis’s year-end update confirmed that trading remained strong through to the financial year end (September). Both corporate and institutional sides of the business contributed to the outcome and prospectively the company indicates a strong deal pipeline. We have increased our estimate for FY17 to match company guidance but left FY18e revenue and pre-tax profit unchanged at this stage. Continuation of benign market conditions could mean the current year estimate proves conservative, while on a longer view the strength of the franchise Numis has established is a key attraction for investors.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
09/15 |
98.0 |
26.1 |
18.3 |
11.5 |
15.7 |
4.0 |
09/16 |
112.3 |
32.5 |
22.4 |
12.0 |
12.9 |
4.2 |
09/17e |
129.0 |
36.5 |
25.0 |
12.0 |
11.5 |
4.2 |
09/18e |
119.5 |
30.8 |
22.1 |
12.5 |
13.0 |
4.3 |
Note: *PBT and EPS are on a reported basis.
Trading update
The year-end update indicates that FY17 revenue increased by 15% and profit by a similar percentage. Growth in Corporate Broking and Advisory (CB&A) and Equities were similar. Within CB&A, equity fund raises totalled £2.5bn (+38%) feeding into strong placing commissions. The generally positive trend in markets helped both trading revenues and institutional commissions to contribute to Equities growth. Looking ahead the group highlights a strong deal pipeline and mentions its increased focus on supporting unquoted companies through its Venture Broking operation. Discussions with clients relating to MiFID II continue. This is an area of uncertainty, as for other brokers, but the firm believes it is well positioned ahead of implementation (within our estimate institutional commissions accounted for c 28% of revenue FY17).
Estimate changes and other developments
Our FY17 estimate is adjusted to reflect the trading update with a revenue increase of 2.4% and pre-tax profit increase of 3.9% compared with our previous numbers while our FY18 estimate is unchanged at the revenue and pre-tax profit level (see exhibits 1 and 2 overleaf). EPS for both years benefit from the purchase of c 6.3m shares into treasury in H217 with increases in estimate of 5.0% and 5.5% for FY17 and FY18 respectively. Other recent developments include two of the previously announced board changes (see last note) with Marcus Chorley and Lorna Tilbian standing down from the board at the end of September; the sale by Tilbian of her shareholding in Numis (5.26%); and the acquisition of an 11.26% holding by Aktieselskabet af 1 March 2017 (controlled by Anders Holch Povlsen).
Valuation
The shares have shown further strength in the last two months but are moderately rated in terms of P/E multiples compared with peers. Our (unchanged) central ROE/COE valuation of 323p points to potential upside of over 10%.
Exhibit 1: Financial summary
£'000s |
2015 |
2016 |
2017e |
2018e |
||
Year end 30 September |
||||||
PROFIT & LOSS |
||||||
Revenue |
|
|
97,985 |
112,335 |
129,000 |
119,500 |
Other operating income |
|
|
(1,978) |
3,759 |
2,991 |
700 |
Total income |
|
|
96,007 |
116,094 |
131,991 |
120,200 |
Cost of Sales (excl. amortisation and depreciation) |
(65,018) |
(76,120) |
(82,189) |
(78,247) |
||
Share based payment |
(4,104) |
(6,229) |
(12,100) |
(10,000) |
||
EBITDA |
|
|
28,863 |
29,986 |
34,711 |
31,253 |
Depreciation |
|
|
(882) |
(1,126) |
(1,214) |
(1,214) |
Amortisation |
(111) |
(125) |
(88) |
(88) |
||
Operating Profit (before amort. and except). |
|
|
27,870 |
28,735 |
33,409 |
29,951 |
Net finance income |
190 |
37 |
100 |
100 |
||
Other operating income |
(1,978) |
3,759 |
2,991 |
700 |
||
Profit Before Tax (norm) |
|
|
26,082 |
32,531 |
36,500 |
30,751 |
Tax |
(4,533) |
(6,132) |
(7,490) |
(5,995) |
||
Profit after tax (FRS 3) |
|
|
21,549 |
26,399 |
29,010 |
24,756 |
Average diluted number of shares outstanding (m) |
117.6 |
118.0 |
116.0 |
112.0 |
||
EPS - basic (p) |
19.5 |
23.5 |
26.4 |
23.4 |
||
EPS - diluted (p) |
|
|
18.3 |
22.4 |
25.0 |
22.1 |
Dividend per share (p) |
11.50 |
12.00 |
12.00 |
12.50 |
||
NAV per share (p) |
102.0 |
113.5 |
121.9 |
132.5 |
||
ROE (%) |
19% |
22% |
22% |
18% |
||
EBITDA margin (%) |
29.5% |
26.7% |
26.9% |
26.2% |
||
Operating margin (before GW and except.) (%) |
28.4% |
25.6% |
25.9% |
25.1% |
||
BALANCE SHEET |
||||||
Fixed assets |
|
|
6,724 |
5,522 |
5,580 |
4,778 |
Current assets |
|
|
279,114 |
312,462 |
317,508 |
329,401 |
Total assets |
|
|
285,838 |
317,984 |
323,088 |
334,179 |
Current liabilities |
|
|
(170,319) |
(188,895) |
(192,835) |
(192,835) |
Long term liabilities |
0 |
(12) |
(11) |
(11) |
||
Net assets |
|
|
115,519 |
129,077 |
130,242 |
141,333 |
CASH FLOW |
||||||
Operating cash flow |
|
|
6,467 |
48,735 |
36,673 |
30,658 |
Net cash from investing activities |
(3,632) |
84 |
(119) |
(100) |
||
Net cash from (used in) financing |
(17,510) |
(19,580) |
(41,333) |
(23,665) |
||
Net cash flow |
|
|
(14,675) |
29,239 |
(4,779) |
6,892 |
Opening net (cash)/debt |
|
|
(74,518) |
(59,591) |
(89,002) |
(84,048) |
Fx effect |
|
|
(252) |
172 |
(175) |
0 |
Closing net (cash)/debt |
(59,591) |
(89,002) |
(84,048) |
(90,941) |
Source: Edison Investment Research, Numis Corporation accounts
Exhibit 2: Estimate changes
Revenue (£m) |
PBT (£m) |
EPS (p) |
DPS (p) |
|||||||||
Old |
New |
Change |
Old |
New |
Change |
Old |
New |
Change |
Old |
New |
Change |
|
09/17e |
126.0 |
129.0 |
2.4% |
35.1 |
36.5 |
3.9% |
23.8 |
25.0 |
5.0% |
12.0 |
12.0 |
0.0% |
09/18e |
119.5 |
119.5 |
0.0% |
30.8 |
30.8 |
0.0% |
21.0 |
22.1 |
5.5% |
12.5 |
12.5 |
0.0% |
Source: Edison Investment Research. Note: EPS diluted
|
|
Diskus Werke is well on track to achieve the improvement in profitability from the depressed levels of 2016 that it projected a few months ago in the annual report and accounts. It has now revised up its forecasts, but there appears to be a degree of prudence in the new figures, notably in terms of profitability and order inflow, perhaps reflecting the small drop in the book/bill ratio to 0.95x from 1.00x.