The first quarter provided a challenging background for trading activity on Share’s platform but, helped by earlier acquisitions, it achieved a small increase in commission and fee revenue and recorded an operating profit, as in H218. The full benefits of Share’s digital transformation and its acquisition strategy are set to become evident over a number of years.
Written by
Share |
Resilient first quarter |
Q119 trading update |
Financial services |
30 May 2019 |
Share price performance
Business description
Next events
Analysts
Share plc is a research client of Edison Investment Research Limited |
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The first quarter provided a challenging background for trading activity on Share’s platform but, helped by earlier acquisitions, it achieved a small increase in commission and fee revenue and recorded an operating profit, as in H218. The full benefits of Share's digital transformation and its acquisition strategy are set to become evident over a number of years.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
18.7 |
0.4 |
0.27 |
0.40 |
120.1 |
1.2 |
12/18 |
21.0 |
0.7 |
0.45 |
0.55 |
73.7 |
1.7 |
12/19e |
22.3 |
1.3 |
0.75 |
0.70 |
44.2 |
2.1 |
12/20e |
23.0 |
1.5 |
0.86 |
0.75 |
38.3 |
2.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Q119 trading update and II approach
Share's Q119 trading update in May signalled a resilient performance against the background of subdued London Stock Exchange trading (number and value of trades were down 27% and 24% respectively y-o-y). Share commission and fee revenues were up 2% y-o-y, while those of its Compeer-collected peer group were down 3%. Market share versus peers increased from 3.54% to 3.70% y-o-y (see chart overleaf). Following on from a profitable H218, Q119 also saw an operating profit as benefits of the spending on IT and acquisitions came through, as we have assumed in our estimate for the full year. On 3 May, Share announced that it had had a preliminary approach from Interactive Investor (II) and early-stage discussions took place. However, on 9 May a further announcement indicated that II would not make an offer for its own reasons (we note that it is in the process of dealing with the Alliance Trust Savings acquisition), although discussions could be resumed with Share board approval.
Outlook
The uncertain UK political background remains a restraining factor for equity market activity and investor confidence, while globally US/China trade tensions are also a concern. However, Share’s update is reassuring in that it shows modest revenue progress despite the difficult background. H219 will see some benefit from tariff changes coming into effect in July (see overleaf). Our existing FY19 estimate assumes fee and commission revenue growth of 2%, while interest income is expected to see continued improvement giving overall revenue growth of 6%. At this stage, we are keeping our estimates unchanged and look for further benefits from its digital transformation investment and acquisition strategy to flow through over the longer term, generating operationally geared profit improvements.
Valuation maintained
Our primarily DCF-based valuation (see March note) is unchanged at this point with a central value of 32p. We would also highlight the early stage at which Share is in its return to profitability and the upside this and potential realisation of merger benefits in the event of the company being involved in consolidation might provide.
Research: TMT
Boku’s capital markets day (CMD) highlighted the strength of the company’s platform, the growth drivers for the direct carrier billing business and outlined the progress of the newer identity services business. The recent trading update confirmed that the company is on track to meet our FY19 estimates, and recent contract announcements provide further support to the company’s growth outlook.