Cenkos Securities — Uncertain background but resilient model

Cenkos Securities (AIM: CNKS)

Currency in GBP

Last close As at 04/02/2023

GBP0.48

1.00 (2.13%)

Market capitalisation

GBP26m

Research: Financials

Cenkos Securities — Uncertain background but resilient model

After a very strong H121, Cenkos recorded slightly higher revenues in H221 and made a strong start to FY22 with transactions including two IPOs and an introduction. The succession in management completed last year has been accompanied by a greater focus on collaboration within the business and the longer-term development of the franchise. Underpinning this is a willingness to invest selectively to ensure high levels of client service. This should be positive for the group even if the near-term market background proves challenging.

Andrew Mitchell

Written by

Andrew Mitchell

Director, Financials

Financials

Cenkos Securities

Uncertain background but resilient model

FY21 results

Financial services

30 March 2022

Price

81p

Market cap

£46m

Net cash (£m) at end Dec 2021

33.5

Shares in issue

56.7m

Free float

75%

Code

CNKS

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

23.6

0.0

4.7

Rel (local)

22.1

0.4

(4.5)

52-week high/low

94p

53p

Business description

Cenkos Securities is a leading UK institutional securities business that acts as nominated adviser, sponsor, broker and financial adviser to companies across all sectors and stages of growth. Since inception in 2005 it has raised more than £21bn in equity capital for corporate clients, which stood at 101 at the end of December. The business has an approach where fixed costs are contained helping it to navigate periods of market volatility.

Next events

AGM

11 May 2022

H122 results (est)

September 2022

Analysts

Andrew Mitchell

+44 (0)20 3681 2500

Martyn King

+44 (0)20 3077 5745

Cenkos Securities is a research client of Edison Investment Research Limited

After a very strong H121, Cenkos recorded slightly higher revenues in H221 and made a strong start to FY22 with transactions including two IPOs and an introduction. The succession in management completed last year has been accompanied by a greater focus on collaboration within the business and the longer-term development of the franchise. Underpinning this is a willingness to invest selectively to ensure high levels of client service. This should be positive for the group even if the near-term market background proves challenging.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/18

45.0

3.24

4.4

4.5

18.4

5.6

12/19

25.9

0.15

0.1

3.0

N/A

3.7

12/20

31.7

2.25

3.3

3.5

24.5

4.3

12/21

37.2

3.95

6.0

4.3

13.4

5.2

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

FY21 results show continued progress

Cenkos’s FY21 results showed full year revenue up 18% to £37.2m with the second half slightly ahead of the first half at £19.0m versus £18.2m. During the year the firm carried out two IPOs and 34 transactions in total (FY20: 29) raising over £1.2bn for clients (£0.9bn). Underlying operating profit increased to £5.9m (£4.0m), while reported pre-tax profit was £4.0m (£2.3m). Diluted EPS increased to 6.0p (3.3p). A final dividend of 3.0p is proposed giving a full year figure of 4.25p (+21%) reflecting balance sheet strength (year-end net cash £33.5m) and the board’s confidence in the business’s ability to weather potential market volatility.

Good start to FY22 but clouded market background

The outlook is clouded by the war in Ukraine and the lingering effect of COVID-19 on supply chains. However, Cenkos reports a good start to 2022 with two IPOs and an introduction, four placings and two M&A transactions carried out in the first 10 weeks. While market turbulence may mean activity levels are lower for a period, on a longer-term view, Cenkos’s increased client list and signs of a revival in AIM membership are encouraging features.

Valuation

Cenkos shares trade on a price to book value of c 1.4x which compares with a 10-year average of 2.1x. Using a ROE/COE model suggests the current price is discounting a return on equity (ROE) of under 13%. This is in line with the figure for FY21 and, given the resumption of growth in client numbers in FY21 and signs of a more positive trend on AIM, could be seen as cautious on a medium-term view. The yield of over 5% and strong balance sheet, with year-end cash of £33.5m and regulatory capital surplus of £15.8m, support this.

FY21 results analysis

Exhibit 1 sets out an analysis of the FY21 profit and loss account allowing comparison with the prior two years and shows the two halves of FY21.

Within the overall y-o-y revenue gain of 18% or £5.6m for FY21, the largest absolute contributor was corporate finance where revenue was up 22% or £4.9m on the back of the increased number of transactions and funds raised during the year. Nomad, broking and research revenues were stable, with an increase in the number of clients and hence retainer fees offset by lower commission income on reduced secondary trading volumes. Execution net trading gains increased by 20% even though the level of capital committed was limited to control risk exposure in volatile markets. As the half-yearly figures show, net trading gains were lower in the second half than the first at £1.5m versus £2.4m.

Other operating income/expense. This line item has been broken out separately for 2020 and 2021 and relates to movements in the fair value of options and warrants received in lieu of fees. Previously this was included within execution revenue. This figure swung during 2020 as the market first declined sharply and then recovered following the onset of the pandemic. That year ended with a positive movement while for 2021 there was a small negative change in both halves.

Staff costs, before restructuring and incentive plan costs, increased by 13% mainly reflecting higher pre-bonus profitability and hence variable compensation. The average number of employees was flat at 91 but the year-end number was 95 versus 90 at end December 2020. During the year there were 18 new hires across the firm including recruits from large investment banks and professional firms. Cenkos remains committed to maintaining a high staff to corporate client ratio to support the level of client service it aims for. As a percentage of revenue, staff costs were 65%, slightly below the FY20 percentage (67%).

Administrative costs (also before restructuring and incentive plan costs) were 9% higher than FY20. The main reason for the change was increased transaction costs as a result of higher corporate finance activity.

Exhibit 1: P&L analysis (year end December)

£000 unless shown

H121

H221

FY19

FY20

FY21

% change

Revenue

Corporate finance

12,732

14,452

17,364

22,250

27,184

22

Nomad, broking and research

3,076

3,096

6,582

6,175

6,172

0

Execution - net trading gains

2,413

1,456

1,970

3,229

3,869

20

Total revenue

18,221

19,004

25,916

31,654

37,225

18

Other operating income/expense

(45)

(42)

259

(87)

Staff costs

(11,778)

(12,302)

(15,805)

(21,304)

(24,080)

13

Admin expenses ex restructuring and incentive plans

(3,565)

(3,593)

(8,715)

(6,585)

(7,158)

9

Underlying profit (loss)

2,833

3,067

1,396

4,024

5,900

47

Restructuring costs

(466)

70

(1,281)

(725)

(396)

-45

Incentive plans

(600)

(800)

(900)

(1,400)

56

Operating profit

1,767

2,337

115

2,399

4,104

71

Investment income - interest income

7

10

106

30

17

-43

Finance costs - interest on lease liability

(88)

(83)

(76)

(176)

(171)

-3

Profit before tax

1,686

2,264

145

2,253

3,950

75

Tax

(183)

(369)

(101)

(449)

(552)

23

Profit after tax

1,503

1,895

44

1,804

3,398

88

Earnings per share (p)

3.1

4.0

0.1

3.7

7.1

92

Diluted earnings per share (p)

2.7

3.3

3.3

6.0

82

Dividend per share (p)

1.25

3.00

3.00

3.50

4.25

21

Source: Cenkos, Edison Investment Research

The combination of the revenue increase of £5.6m and an increase in costs/other expenses of £3.7m resulted in a 47%, or £1.9m, increase in underlying operating profit to £5.9m.

Restructuring costs were lower at £0.4m versus £0.7m with a final charge related to the FY19 restructuring plan being taken in H121. Incentive plan costs increased from £0.9m to £1.4m and included charges relating to the short-term incentive plan (launched in April 2020, due to end H122), long-term incentive plan (launched in April 2021 and focused on senior management) and company share option plan (launched March 2021 for all employees).

After these costs and net finance costs, pre-tax profit was 75% higher at £4.0m while a lower tax charge (14% versus 20%) left diluted earnings per share up 88% at 6.0p.

A final dividend of 3.0p is proposed versus 2.5p for FY20 giving a total of 4.25p (+21%). The board aims to return significant shareholder value by establishing a level of consistency of dividend payments through periods of market fluctuation. It will explore other potential returns of excess capital subject to capital and liquidity requirements. The intention is to purchase shares over time to match unvested share awards and manage the issued share capital.

Exhibit 2: Performance indicators

2016

2017

2018

2019

2020

2021

Revenue per head (£m)

0.37

0.48

0.41

0.23

0.35

0.41

Corporate client base (number)

116

117

116

100

94

101

Funds raised for clients (£m)

1,325

2,533

1,193

664

944

1,207

Non-corporate finance revenue to fixed costs (%)

66

63

50

41

57

54

Cash at bank (£m)

23.8

36.8

33.6

18.3

32.7

33.5

Regulatory surplus over Pillar 1 capital requirements (£m)

9.8

9.6

11.2

13.5

14.5

15.8

Underlying profit (£m)

5.0

10.7

4.6

1.4

4.0

5.9

Dividend per share (p)

6.00

9.00

4.50

3.00

3.50

4.25

Source: Cenkos, Edison Investment Research

In Exhibit 2 we show key performance indicators used by Cenkos. Over the six-year period shown, the variation in revenue per head was influenced by the fluctuation in funds raised for clients, which in turn affected the level of underlying profit and dividend payment. The corporate client count was lower in 2020 but, positively, saw a net increase of seven in 2021 including 17 new companies. While the level of non-corporate finance revenue to fixed costs was slightly lower at 54% in 2021 (versus 57% in 2020) this is still an indicator of resilience as is the level of cash on the balance sheet (£33.5m) and the regulatory capital surplus of £15.8m.

Last year’s transactions included two IPOs (Lords Trading and GEN inCode) while early 2022 included two IPOs and an introduction to AIM: Facilities by ADF, Clean Power Hydrogen and Neometals. Cenkos carried out 10% of all AIM fund-raisings in 2021 (8% 2020) and reports that in terms of AIM clients it was ranked second by number and sixth by aggregate market capitalisation according to Corporate Advisers Rankings Guide.

Background and outlook

In this section we discuss the background and outlook for Cenkos including charts showing the recent performance of the UK equity market and levels of trading volume on the Main and AIM markets.

Looking at the UK equity market, Exhibit 3 shows the period of recovery following the initial impact of COVID-19 in 2020 and then a more stable period before macro-economic concerns began to have greater influence followed by the initial reaction to the war in Ukraine. The relative strength in small-cap equities from the end of 2020 to September 2021 reflected a rotation towards higher risk/more economically sensitive stocks. The weakening in the market year to date has been more pronounced for the small cap index but even so, the small-cap index as outperformed by 30% over the period shown. In Exhibit 4 we can see the brief spike in trading activity on the London Stock Exchange Main market order book in early 2020 at start of the pandemic. This was comparable with the levels seen during the global financial crisis but shorter lived. Subsequent activity subsided before rising again with the invasion of Ukraine. AIM activity rose later than the Main market, which reflects the rotation highlighted previously.

Exhibit 3: UK equity indices

Exhibit 4: LSE average daily value traded (£m)

Source: Refinitiv, CBOE indices

Source: London Stock Exchange (Main Market order book and AIM)

Exhibit 3: UK equity indices

Source: Refinitiv, CBOE indices

Exhibit 4: LSE average daily value traded (£m)

Source: London Stock Exchange (Main Market order book and AIM)

The next two charts show levels of equity issuance on the London Stock Exchange Main and AIM markets since 2010. For both markets, activity strengthened in 2020, driven mainly by further issuance, with IPO numbers restricted by the market background. Fund-raising to support balance sheets played a prominent role for the Main market in 2020 after the onset of the pandemic, but the subsequent bounce back in new issuance and fund-raising was directed more towards financing M&A and growth. In 2021 Main market money raised fell back by 30% to £26.1bn, but on AIM there was a further year of substantial growth with £8.7bn raised (+52%). AIM also saw a small increase in the number companies on the market (up 4% to 852). With 74% of its clients on AIM, Cenkos was more aligned in 2021 with the pattern at AIM, with its £1.2bn of total funds raised for clients representing an increase of 28% from 2021, while funds raised for clients on AIM doubled from £0.4m to £0.8bn.

Exhibit 5: Main Market money raised and new issues

Exhibit 6: AIM money raised and new issues

Source: London Stock Exchange

Source: London Stock Exchange

Exhibit 5: Main Market money raised and new issues

Source: London Stock Exchange

Exhibit 6: AIM money raised and new issues

Source: London Stock Exchange

What next? The potentially far-reaching impact of the war in Ukraine on the global geopolitical climate, and the pre-existing uncertainty over the impact of prospective rises in policy rates and continuing supply-chain disruption, create challenging conditions for market participants. Acknowledging this, Cenkos does not assume earlier favourable market conditions will persist, but it does remain confident in its business model. In addition to cost discipline, which helps contain fixed costs, its focus on providing a responsive client service through fostering a collaborative and entrepreneurial approach in its teams and maintaining a strong balance sheet is designed to allow it to navigate market fluctuations.

Exhibit 7 provides some perspective here, showing the rate of transactions per client since 2016. This highlights the probability that a certain number of clients are likely to want to carry out equity-supported deals over time. As would be expected, the number of transactions fluctuates from year to year (the percentage varied between 25% and 35% in the period shown) but activity does sometimes show surprising resilience and has tended to bounce back following a phase of market uncertainty and muted activity. The number of clients increased last year following a decline from 2018 and the average deal fee (broadly reflecting the deal size and complexity of transactions) also increased for a second year, although was still below the level seen in 2017 and 2018.

Exhibit 7: Cenkos transactions per client and average deal fee since 2016

2016

2017

2018

2019

2020

2021

Number of transactions/ number of clients (%)

31

35

28

25

31

34

Number of transactions

36

41

32

25

29

34

Number of clients

116

117

116

100

94

101

Average deal fee (£m)

0.826

1.074

1.023

0.695

0.767

0.800

Source: Cenkos Securities, Edison Investment Research.

Sensitivities for the business include changes in equity market conditions, the loss of key staff, reputational risk and regulatory change. While risks remain significant, considering mitigating measures, Cenkos reports no change in the residual risks in its annual report.

Financials

Given the uncertainty over prospective revenues, we do not include estimates in this note. However, it is useful to highlight the impact of the company’s disciplined approach to fixed costs mentioned earlier.

Cenkos reports the percentage of fixed costs covered by non-corporate finance revenues (see Exhibit 2) allowing us to track an indicated level of underlying fixed costs. In FY21 these increased by 13% to £18.6m compared with £16.5m for FY20, but were still 24% below the level in 2018, prior to the restructuring programme initiated in FY19. Ignoring the accrual of incentive plan costs and any restructuring costs (£1.4m and £0.4m respectively in FY21), this would mean annual revenue would have to fall toward £20m before an underlying loss was incurred. Alternatively, on an underlying basis, Cenkos generated an operating profit of £5.9m in FY21, which could fall to £1.8m if revenue fell to the 2019 level of £25.9m or increase to about £6.2m if revenue reached the historical five-year average of £40m (making an assumption about the level of variable compensation, allowing for fixed costs to rise to £20m and factoring in a 19% tax rate versus 14% for FY21).

Looking at cash flow, FY21 operating cash flow before working capital movements and tax was £5.9 versus £5.5m for FY20. Working capital movements are typically volatile between individual periods for stockbroking firms, reflecting the timing of fees, bonus payments and market-making positions. In FY19 there was an outflow of £9.0m, for FY20 there was a positive move of £11.6m while in FY21 there was an inflow of £1.5m. This left net cash flow from operations at £6.6m. After outflows of £1.9m for dividends and £3.1m for share buybacks and with other smaller movements, there was an overall cash inflow of £0.7m, leaving net cash at £33.5m (£32.7m at end FY20).

On capital, as shown in Exhibit 2, the FY21 year-end regulatory surplus over Pillar 1 capital requirements stood at £15.8m versus £14.5m at end FY20.

Valuation

As we are not publishing forecasts for Cenkos, we focus on where the valuation stands in terms of the historical price to book multiple and look at the implied ROE based on an ROE/COE model.

The share price is unchanged over three months and year-to-date (compared with average falls of 17%-19% for other quoted UK brokers and 6-7% for US and European investment bank and advisory firms) and is trading at a book multiple of around 1.4x, which compares with a 10-year average of 2.1x (see Exhibit 8). This relatively depressed level can be set in context by looking at the ROE that Cenkos has earned over a number of periods. Taking reported earnings, the FY21 return was 13%, compared with the five- and 10-year averages of 11% and 23% respectively. Historically, Cenkos results benefited from the execution of a number of large transactions, which may not be repeated, while regulatory costs and MiFID II impacts have been permanent negative changes. Against this, Cenkos’s flexible operating model and control over fixed costs should help protect profitability as set out in the Financials section, and if growth in client numbers and more positive development in the AIM market persist, then this should underpin higher longer-term returns. Using a ROE/COE model and assuming long-term growth of 2% and a COE of 10%, the share price suggests the market assumes an ROE of 13%, matching the FY21 level.

Exhibit 8: 10-year price to book value history

Source: Refinitiv, Edison Investment Research


Exhibit 9: Financial summary

£000s

2016

2017

2018

2019

2020

2021

Year end 31 December

PROFIT & LOSS

 

 

 

 

 

 

 

Revenue

Corporate finance & placing fees

29,720

44,030

32,734

17,364

22,250

27,184

Corporate broking, research, and commission

10,514

8,222

7,824

6,582

6,175

6,172

Execution

3,509

7,252

4,395

1,970

3,229

3,869

Total revenue

43,743

59,504

44,953

25,916

31,654

37,225

Other income/expense

259

(87)

Administration expenses (ex depreciation)

(38,581)

(49,286)

(41,567)

(24,902)

(28,823)

(32,385)

EBITDA

5,162

10,218

3,386

1,014

3,090

4,753

Depreciation

(182)

(242)

(247)

(899)

(691)

(649)

Operating profit

4,980

9,976

3,139

115

2,399

4,104

Investment revenues

83

23

103

30

(146)

(154)

Profit before tax

5,063

9,999

3,242

145

2,253

3,950

Tax

(1,858)

(1,815)

(805)

(101)

(449)

(552)

Profit after tax, continuing operations

3,205

8,184

2,437

44

1,804

3,398

Discontinued operations

(661)

(973)

0

0

0

0

Profit after tax

2,544

7,211

2,437

44

1,804

3,398

Average number of shares outstanding (m)

54.7

54.7

51.8

51.2

49.2

48.0

EPS continuing operations (p)

5.9

15.0

4.4

0.1

3.7

7.1

Fully diluted EPS (p)

4.6

13.2

4.4

0.1

3.3

6.0

Dividend per share (p)

6.00

9.00

4.50

3.00

3.50

4.25

NAV per share (p)

49.8

56.2

54.0

49.4

54.0

58.3

ROE (%)

10%

25%

9%

0%

7%

13%

Cost/income ratio

88.6%

83.2%

93.0%

99.6%

93.2%

88.7%

Staff costs/Revenue

68.3%

63.7%

64.4%

63.6%

71.4%

68.0%

BALANCE SHEET

 

 

 

 

 

 

 

Non-current assets

625

1,263

1,179

5,611

5,202

5,130

Property, plant and equipment

389

525

558

517

382

398

Other non-current assets

236

738

621

5,094

4,820

4,732

Current assets

62,692

68,492

65,333

40,821

51,040

51,235

Other current assets inc Investments - long positions

13,811

10,615

12,648

8,973

5,312

7,231

Cash

23,795

36,829

33,635

18,333

32,735

33,457

Debtors and other

25,086

21,048

19,050

13,515

12,993

10,547

Current liabilities

(35,254)

(39,641)

(38,658)

(16,555)

(25,531)

(24,942)

Other current liabilities inc short positions

(2,694)

(3,341)

(6,018)

(1,840)

(1,011)

(1,915)

Other current liabilities

(32,560)

(36,300)

(32,640)

(14,715)

(24,520)

(23,027)

Non-current liabilities

(880)

(366)

(263)

(5,219)

(5,086)

(4,436)

Net assets

27,183

29,748

27,591

24,658

25,625

26,987

CASH FLOW

 

 

 

 

 

 

 

Operating cash flow

(465)

6,917

3,168

(1,818)

5,474

5,853

Working capital and other items

(1,387)

13,490

1,558

(9,051)

11,636

1,521

Tax paid

(2,533)

(1,334)

(1,664)

(351)

(99)

(783)

Net cash from operating items

(4,385)

19,073

3,062

(11,220)

17,011

6,591

Fixed asset investment

(272)

(378)

(280)

(197)

(41)

(150)

Acquisitions/disposals

0

0

0

(140)

0

0

Other investing activities

93

23

90

90

24

4

Share (purchase)/issuance

(438)

(549)

(2,353)

(1,277)

(1,960)

(3,067)

Ordinary dividends

(4,367)

(5,201)

(3,573)

(2,485)

(1,027)

(1,922)

Other financing

58

66

62

(73)

395

(734)

Net cash flow

(9,311)

13,034

(2,992)

(15,302)

14,402

722

Opening net (debt)/cash

33,106

23,795

36,627*

33,635

18,333

32,735

Closing net (debt)/cash

23,795

36,829*

33,635

18,333

32,735

33,457

Source: Cenkos Securities, Edison Investment Research. Note: *A change in accounting policy relating to EBT and SIP in 2019 was applied retrospectively to 2018 and results in a small mismatch between closing net cash in 2017 and opening net cash in 2018.


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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

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Copyright: Copyright 2022 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

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Nürnberger Beteiligungs — FY21 earnings affected by natural disasters

Despite the life insurance segment’s solid growth in new business and earnings, Nürnberger Beteiligungs (NBG) posted a c 19% y-o-y drop in net income (ex-minorities) at the group level in FY21, weighed down by higher claims expenses in the Property & Casualty (P&C) segment due to severe storms and floods in Germany in 2021. While NBG fell short of delivering its earnings guidance from the beginning of 2021, its FY21 net income of €63m was slightly ahead of management guidance, updated in August 2021, of €60m after the catastrophic weather events. After a challenging FY21 for P&C, management guides to significantly higher earnings at group level in FY22 and has proposed a dividend of €3.30 per share (unchanged versus last year), implying a yield of 4.1%.

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