Numis — Very strong end to the year

Numis Corporation (LSE: NUM)

Last close As at 02/03/2024

GBP3.43

0.00 (0.00%)

Market capitalisation

GBP402m

More on this equity

Research: Financials

Numis — Very strong end to the year

Numis reported a particularly strong end to its financial year driven principally by capital markets activity. FY20 revenues are set to be nearly 12% ahead of our previous estimate resulting in a 42% increase in our pre-tax profit forecast. Looking ahead, the incidence of capital markets transactions remains uncertain but this prospective result tends to confirm the strength of the franchise and validate the investment the firm has made in resources to underpin client service and growth.

Analyst avatar placeholder

Written by

Financials

Numis

Very strong end to the year

FY20 trading update

Financial services

1 October 2020

Price

295p

Market cap

£310m

Net cash (£m) end March 2020

95.3

Shares in issue

105.1m

Free float

75%

Code

NUM

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.0

(6.6)

29.8

Rel (local)

2.9

(3.0)

60.7

52-week high/low

317p

167p

Business description

Numis 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 280 staff in offices in London and New York, and at the end of March 2020 had 209 corporate clients.

Next events

FY20 results

December 2020

Analysts

Andrew Mitchell

+44 (0)20 3681 2500

Martyn King

+44 (0)20 3077 5745

Numis is a research client of Edison Investment Research Limited

Numis reported a particularly strong end to its financial year driven principally by capital markets activity. FY20 revenues are set to be nearly 12% ahead of our previous estimate resulting in a 42% increase in our pre-tax profit forecast. Looking ahead, the incidence of capital markets transactions remains uncertain but this prospective result tends to confirm the strength of the franchise and validate the investment the firm has made in resources to underpin client service and growth.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/17

130.1

38.3

25.9

12.0

11.4

4.1

09/18

136.0

31.6

23.0

12.0

12.8

4.1

09/19

111.6

12.4

8.1

12.0

36.3

4.1

09/20e

150.8

34.8

24.7

12.0

11.9

4.1

Note: *PBT and EPS are on a reported basis and EPS is fully diluted.

Capital markets lead strong H2 performance

Numis’s trading update for the year ending September indicated that the strength in capital markets activity reported in July carried on through the final quarter of the year. After the Q320 update we estimated full-year group revenue of £135m, but, following a particularly strong September, revenue is set to be above £150m (FY19: £111.6m). Profits are expected to be materially higher than FY19 (£12.4m). High levels of capital markets activity have been driven by equity raising for retained corporate clients to address the impact of COVID-19 and to finance growth or acquisition opportunities. This more than offset subdued IPO and M&A activity. Also within Investment Banking, the global private markets activity has shown further growth and selective investment is being made in the area. Equities revenues in the second half have been maintained at a similar level to H120, even though market activity has subsided; continued strong trading profits, market share gains and a contribution from a new electronic trading product were positive factors. Our FY20 revenue estimate is increased to £150.8m and fully diluted EPS to 24.7p (£135m and 17.5p previously).

Positive start to FY21 expected

Numis notes that its pipeline, including private transactions, is growing at an encouraging pace and is now more diversified than seen initially following the onset of COVID-19. Consequently the group is looking for a good start to FY21 despite uncertainties connected with COVID-19, the US presidential election and Brexit.

Valuation

Numis shares trade on a price to NAV of 2.3x, which is above the 10-year average of 2.0x. However, on our return on equity (ROE)/cost of equity (COE) model, the current share price would be consistent with an assumed ROE of 17.7%, below the 19% implied on our forecast for FY20 and similar to the five-year average of 18%. The potential to gain further medium-term growth benefits from earlier investments in staff help underpin the valuation.

Trading background

The two charts below show the value of new and further issuance for the London Stock Exchange Main and AIM markets. Reflecting the influence of the pandemic, the value of Main Market new issuance, for the five months to end August, was 39% below the prior year period, but further issuance was up 87% leaving total issuance 54% ahead. On AIM the pattern was accentuated with new issuance down 56% and further issuance up 108%, resulting in a 78% increase in total issuance over the prior year period. As the last readings show, August was a relatively quiet month (in tune with Numis’s experience). As noted above, September was a particularly strong month for Numis and it indicates a promising pipeline for the first quarter of FY21.

Exhibit 1: LSE Main Market new and further issuance

Exhibit 2: LSE AIM new and further issuance

Source: London Stock Exchange

Source: London Stock Exchange

Exhibit 1: LSE Main Market new and further issuance

Source: London Stock Exchange

Exhibit 2: LSE AIM new and further issuance

Source: London Stock Exchange

Exhibit 3 illustrates recent equity market performance showing the initial impact of the onset of COVID-19 in March and subsequent recovery. The CBOE UK Alternative 100 (AIM issuers) index is down just 2% year to date, while the UK all-companies and UK small companies indices are down 22% and 25% respectively. Exhibit 4 shows the trend in London Stock Exchange order book trading; the elevated trading levels associated with the pandemic are clear, as is the reversion to more normal trading activity that followed, as noted by Numis.

Exhibit 3: AIM, all-companies and small cap indices

Exhibit 4: LSE order book, average daily value traded

Source: Refinitiv. Note: CBOE UK net-return indices.

Source: London Stock Exchange (Main Market)

Exhibit 3: AIM, all-companies and small cap indices

Source: Refinitiv. Note: CBOE UK net-return indices.

Exhibit 4: LSE order book, average daily value traded

Source: London Stock Exchange (Main Market)

Looking ahead, considerable uncertainties related to COVID-19 remain in place, with the outcome of the US presidential election and Brexit negotiations among other potentially significant influences on market sentiment and corporate confidence and activity.


Financials

Exhibit 5 shows the changes in key numbers from our revised FY20 estimates; further detail is given in the financial summary (Exhibit 7). As noted earlier the near 12% increase in assumed revenues flows through to 42% increases in pre-tax profit and earnings per share estimates.

Exhibit 5: Estimate changes

Revenue (£m)

PBT (£m)

EPS (p)

DPS (p)

Old

New

Change

Old

New

Change

Old

New

Change

Old

New

Change

09/20e

135.0

150.8

11.7%

24.6

34.8

41.6%

17.5

24.7

41.6%

12.0

12.0

0.0%

Source: Edison Investment Research

As reported with the H120 result, the timing of the move to the company’s new London office at 40 Gresham Street has been affected by COVID-19. The lease is expected to begin in H121, but with relocation taking place in H221. The 50,000 square foot office will be c 60% larger than the existing one, providing capacity for growth over the term of the 15-year lease. Including the effect of implementation of IFRS 16, Numis expects this will increase ongoing costs from FY21 by £3m. In addition to this there will be fitout costs that we estimate could be in the region of £7–9m (based on a Cushman and Wakefield cost report). These costs will be amortised over the lease term (c £0.6m pa) and in cash terms would be broadly balanced by the benefit of a three-year rent-free period (we estimate c £9m in total). In addition there are likely to be exceptional costs relating to moving out of the Paternoster Square office; at this stage it is not certain which period these costs will fall into.

Valuation

Given the uncertainties surrounding estimates beyond FY20 we continue to focus on price to book value as a valuation measure. Exhibit 6 shows where this stands relative to the 10-year history with a current value of 2.3x compared with an average of c 2.0x.

Exhibit 6: 10-year history of the price to book value ratio for Numis

Source: Refinitiv, Edison Investment Research

Using an ROE/COE valuation model to infer the ROE assumption required to match the 295p share price at time of writing gives a value of 17.7% (based on the H120 NAV of 129p and assuming a cost of equity of 10% and growth of 4%). This is below the 19% return implied by our estimate for FY20 and similar to the five-year historical average of 18%. The potential for further benefits to be realised from the investment in staff made from FY18 is supportive of medium-term growth prospects and hence the valuation.

Exhibit 7: Financial summary

£'000s

2015

2016

2017

2018

2019

2020e

Year end 30 September

PROFIT & LOSS

Revenue

 

 

97,985

112,335

130,095

136,047

111,610

150,750

Administrative expenses (excl. amortisation and depreciation)

(65,018)

(76,120)

(83,626)

(94,603)

(85,432)

(100,244)

Share based payment

(4,104)

(6,229)

(10,454)

(10,583)

(10,914)

(10,900)

EBITDA

 

 

28,863

29,986

36,015

30,861

15,264

39,606

Depreciation

 

 

(882)

(1,126)

(1,226)

(1,113)

(1,124)

(2,894)

Amortisation

(111)

(125)

(89)

(49)

(44)

(95)

Operating Profit

 

 

27,870

28,735

34,700

29,699

14,096

36,617

Net finance income

190

37

188

212

550

60

Other operating income

(1,978)

3,759

3,431

1,733

(2,210)

(1,904)

Profit before tax

 

 

26,082

32,531

38,319

31,644

12,436

34,773

Tax

(4,533)

(6,132)

(7,942)

(4,967)

(3,110)

(6,607)

Profit after tax (FRS 3)

 

 

21,549

26,399

30,377

26,677

9,326

28,166

Average diluted number of shares outstanding (m)

117.6

118.0

117.2

115.8

114.9

113.9

EPS - basic (p)

19.5

23.5

27.4

25.1

8.8

26.8

EPS - diluted (p)

 

 

18.3

22.4

25.9

23.0

8.1

24.7

Dividend per share (p)

11.50

12.00

12.00

12.00

12.00

12.00

NAV per share (p)

102.0

113.5

125.0

135.0

131.7

142.2

ROE (%)

19%

22%

23%

19%

6.6%

19.6%

EBITDA margin (%)

29.5%

26.7%

27.7%

22.7%

13.7%

26.3%

Operating margin (before GW and except.) (%)

28.4%

25.6%

26.7%

21.8%

12.6%

24.3%

BALANCE SHEET

Fixed assets

 

 

6,724

5,522

6,147

8,215

6,832

9,671

Current assets

 

 

279,114

312,462

407,850

533,033

326,641

391,398

Total assets

 

 

285,838

317,984

413,997

541,248

333,473

401,069

Current liabilities

 

 

(170,319)

(188,895)

(280,371)

(398,112)

(195,319)

(248,940)

Long term liabilities

0

(12)

0

0

0

(2,736)

Net assets

 

 

115,519

129,077

133,626

143,136

138,154

149,393

CASH FLOW

Operating cash flow

 

 

6,467

48,735

43,369

45,830

(2,748)

51,406

Net cash from investing activities

(3,632)

84

(198)

(1,014)

(77)

151

Net cash from (used in) financing

(17,510)

(19,580)

(36,359)

(29,035)

(24,646)

(29,265)

Net cash flow

 

 

(14,675)

29,239

6,812

15,781

(27,471)

24,016

Opening net (cash)/debt

 

 

(74,518)

(59,591)

(89,002)

(95,852)

(111,673)

(84,202)

FX effect

 

 

(252)

172

38

40

0

0

Closing net (cash)/debt

 

 

(59,591)

(89,002)

(95,852)

(111,673)

(84,202)

(108,218)

Source: Numis accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Numis Corporation and prepared and issued by Edison, in consideration of a fee payable by Numis Corporation. 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.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

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

General disclaimer and copyright

This report has been commissioned by Numis Corporation and prepared and issued by Edison, in consideration of a fee payable by Numis Corporation. 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.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

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

More on Numis Corporation

View All

Latest from the Financials sector

View All Financials content

Research: Healthcare

Formycon — Two submissions and two Phase III trials in 2021

Formycon continues to progress three core biosimilar projects. In H220, it is preparing the FYB201 (Lucentis biosimilar) EMA approval submission and helping in the resubmission of FYB201 to the FDA. FYB203 (Eylea biosimilar) entered Phase III in August. FYB202 (Stelara biosimilar, autoimmunity) is due to enter Phase III imminently. Development income from partners was €16.5m in H120, giving a loss of €1.4m and a cash outflow of €2.1m. Cash was €20.3m on 30 June.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free