AFH Financial (LON:AFHP) – Business Update
Share Price 276pMkt Cap £118mConflict Disclosure: No Holding- Update The company confirms current trading is strong with double digit gross inflows and 2% outflows. It re iterates its target of £10bn AUM, £140m revenue and 25% underlying EBITDA margin, which equates to £35m EBITDA. Perhaps the most significant part is the clear statement “ the Company does anticipate requiring any additional funding from the equity market in the foreseeable future”
- Estimates To 31 October 2019 £17.7m PBT and £17.9m EBITDA is anticipated. 30.5p EPS
- Valuation Adding the £15m convertible to the market cap we get EV/EBITDA of 7.4X. If we take the medium term target of £35m EBITDA we get 3.8X. Current PER 9X, yield 3%
- Conclusion Both Harwood and AFH have fallen as the market has fallen out of love with them. On the current valuation I am hard pushed to see the downside. Particularly as the company has committed to print that no equity issuance is anticipated.
Christie Group (LON:C3U) – H1 Results
Share Price 103p
Mkt Cap £27m
Conflict Disclosure: No Holding
Begbies Traynor (LON:BEG) – Tip
Share Price 74pMkt Cap £93mConflict Disclosure: No holding- Tipped in the Midas column over the week end - based on last year’s 16k insolvencies growing towards the 26k achieved in the golden years of insolvency. They mention the target of £100m of revenues in 3 years.
- Forecasts are for £66m this year rising to £70m revenue in 2022, so the targeted revenues aren’t in forecasts. To bridge the gap may need acquisitions. The Exeter restructuring consultant was acquired in September at 2.7X revenue while in April a chartered surveyor business was acquired at c 1X revenue. So to bridge the £30m gap it seems likely the company will need to pay £30m, which on a £92m mkt cap is significant, and could overhang the share price.
- Acquisitions This is one of the rare companies that has shown it can acquire at a better ROE than reinvesting in its own business so the acquisition strategy would seem to be fully justified. Last year ROE increased from 3.9% to 5.5%. The shares trade at a 8% discount to NAV. To get above NAV the market needs to be anticipating a double digit return which is close to a doubling of profits from here. And extra £30m revenue at 20% operating margin would achieve that. The last two acquisitions made 20% and 30% operating margins respectively.
- Conclusion The acquisition strategy could turn this into a growth stock. This is effectively a bet on the rate of acquisitions. I think they may be able to deliver - and more.
Stanley Gibbons (LON:SGI) – Visit
Share Price 2.05p
Mkt Cap £9m
Conflict disclosure: No holding
Conclusion If the company traded profitably it could trade at 2-3X revenues. But with £11m debt and £5.5m of pension deficit the company is trading at an EV/Sales of 2.8X today. There is a lot of work yet to do to achieve profitability. With a refurbishment and a new website revenue could start to grow but I suspect this is one to revisit in 6 months’ time rather than being an opportunity today. The inherent gearing of the share price makes this a warrant on profitability rather than an equity investment