Numis Corporation — Update 4 January 2017

Numis Corporation (LSE: NUM)

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Research: Financials

Numis Corporation — Update 4 January 2017

Numis Corporation

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Financials

Numis Corporation

Growing in uncertain market conditions

Full-year figures

Financial services

4 January 2017

Price

238.75p

Market cap

£270m

Net cash (£m) as at 30 September 2016

89.0

Shares in issue

113.4m

Free float

58.5%

Code

NUM

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.3

6.8

(2.5)

Rel (local)

(1.8)

4.4

(13.7)

52-week high/low

247.2p

180.5p

Business description

Numis has grown to become one of the UK's leading institutional stockbrokers and corporate advisors. It employs over 200 staff in offices in London and New York, and has 199 corporate clients.

Next events

AGM

February 2017

Analysts

Andrew Mitchell

+44 (0)20 3681 2500

Julian Roberts

+44 (0)20 3077 5748

Numis Corporation is a research client of Edison Investment Research Limited

Equity indices have shown resilience but FY16 did not provide an easy backdrop for Numis’s corporate activities, so delivery of revenue growth of 15% was encouraging and demonstrates further the benefit of the continued growth in the franchise. The corporate client count now stands at 199, compared with 130 in 2010, and with potential to broaden its areas of sectoral strength and develop services offered to private companies, there appear to be many opportunities to focus on.

Year end

Revenue (£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/15

98.0

26.1

18.3

11.5

13.0

4.8

09/16

112.3

32.5

22.4

12.0

10.7

5.0

09/17e

113.1

31.7

21.3

12.5

11.2

5.2

09/18e

115.1

32.7

21.9

13.0

10.9

5.4

Note: PBT and EPS are on a reported basis.

FY16 strong result

Revenues of £112.3m were 15% ahead of the prior year with the largest contributor to growth in absolute terms being placing commissions, which increased by £10.3m or 27%. Deal fees moderated but all other segments made progress. Other income swung from a loss to a profit of £3.8m and this together with a broadly stable cost income ratio allowed profits to increase by 25% to £32.5m and fully diluted EPS by 22% to 22.4p. Cash flow has also been strong with the cash balance increasing from £59.6m to £89.0m. The full year dividend is increased by 4% to 12p and the board indicates that it will consider returning part of the company’s surplus capital. Our FY17 estimate is little changed, with EPS down less than 3% on marginally lower revenue assumptions.

Management succession and continuity

As announced at the interim stage, Alex Ham and Ross Mitchinson succeeded Oliver Hemsley, taking on co-CEO roles at the beginning of September. Being internal appointments and with Hemsley and other established directors remaining on the board, continuity can be expected; Numis reports the handover has been seamless. Areas highlighted as sources of future growth include those sectors where Numis is not yet strongly represented in terms of corporate clients and serving private companies. The latter is seen as growing opportunity as companies increasingly wish to stay private for as long as possible but still require external finance. On this front Numis has a Venture Broking team and participated in the Skyscanner private placing earlier this year and Accelerated Digital Ventures more recently.

Valuation: Still cautiously valued

A peer comparison shows Numis is cautiously valued both in the context of quoted UK brokers and a broader spread of investment banking and other intermediary or advisory businesses. Our central valuation, derived using an ROE/COE model with unchanged assumptions applied to year end NAV, is 340p (339p previously). If we assume a capital return of £25m, this would point to a value of 384p (see page 9).

The franchise continues to expand

Founder of Numis and former CEO Oliver Hemsley formed Hemsley & Co Securities in 1989, which became the basis of Numis Corporation. The company developed its corporate finance business, initially focusing on Lloyd’s of London corporate vehicles. It listed on AIM in 1996 and broadened its expertise, expanded its institutional broking and market making activities and established a US office in 2004 (North America accounts for more than 25% of secondary commission). There are now just under 200 corporate clients (Exhibit 1) and the average market capital has increased to c £560m, whilst the company has not forsaken its traditional strength in small-cap broking with the median market cap being £240m. Profitability was maintained through the financial crisis on a normalised basis, which excludes fair value losses incurred on investments in FY09. Revenue and profitability have subsequently expanded with the client base (Exhibit 2).

Exhibit 1: Corporate client numbers

Exhibit 2: Revenue and normalised pre-tax profit

Source: Numis

Source: Numis, Edison Investment Research. Note: Year-end September.

Exhibit 1: Corporate client numbers

Source: Numis

Exhibit 2: Revenue and normalised pre-tax profit

Source: Numis, Edison Investment Research. Note: Year-end September.

Revenue per head has more than doubled since FY12 (Exhibit 3) and Numis has collated data showing that, on this measure, it leads quoted and unquoted UK brokers and is only second to Goldman Sachs among investment banks. From FY13 the cost income ratio has been held at or below 74%, enabling increased revenues to flow through to profits and cash flow (see page 7). Analysing revenues for the last five years (Exhibit 4) corporate broking and advisory accounted for 59% of the total, including 37% for placing commissions, while institutional income contributed 41%, with most of this coming from commissions (33% of total revenue).

FY16 saw management succession, with Alex Ham and Ross Mitchinson taking on joint CEO roles, while Oliver Hemsley remains on the board as an executive director.

Exhibit 3: Revenue per head and cost income ratio

Exhibit 4: Revenue analysis (five years to FY16)

Source: Numis, Edison Investment Research

Source: Numis, Edison Investment Research

Exhibit 3: Revenue per head and cost income ratio

Source: Numis, Edison Investment Research

Exhibit 4: Revenue analysis (five years to FY16)

Source: Numis, Edison Investment Research

Full year results 2016

Numis reported strong results for the year to end September, with revenues up 15% and pre-tax profits ahead 25% in a period when the market background was mixed and characterised by periods of heightened uncertainty. The corporate client list continued to grow and a smooth management succession appears to have been achieved. Key points were as follows:

Revenue increased by 15% to £112.3m.

Statutory profit increased by 25% to £32.5m.

Numis no longer reports a normalised profit number, but stripping out items relating to share-based payments (+£7.1m) and other income (-£3.8m, related to movements on strategic investments) would leave an adjusted figure of £35.9m, a 10% increase on the prior year.

Statutory, fully diluted earnings per share increased by 22% to 22.49p.

The full year dividend of 12p represented an increase of 4% on the prior year.

Cash flow was particularly strong with the cash balance increasing by £29m to £89m, although this did benefit from a substantial reduction in net market making positions at the year end.

The board is considering returning capital that is considered surplus and is discussing possible ways of doing this internally and with shareholders. Numis indicates that the buyback programme, which absorbed £6.7m in FY16, is likely to be enlarged and extended.

The number of corporate clients increased by a net 16 (33 gross) to end the year at 199.

Capital raised for clients was £1.8bn, compared with £2.1bn in FY15, and of the 47 equity raisings there were 13 IPOs (8.0% market share in London versus 6.7% FY15).

Numis’s UK equity capital markets ranking (by calendar year) has risen from 14th in 2013 to third in 2016 to the end of November (source Numis, Bloomberg).

Exhibit 5 sets out the segmental analysis of revenues over recent years. In FY16 trading income showed a sharp increase after a relatively depressed performance in 2015. However, this was only 10% above the result for the previous four years and in our estimates we assume a contribution only modestly below the FY16 outcome. Institutional commissions have faced headwinds from long-term downward pressure on rates, but were up 9% last year and Numis reports that it has not yet seen a significant change in behaviour of institutional clients ahead of MiFID II (see page 6 for discussion). The contribution to secondary commissions from trading in the shares of corporate clients has become increasingly important and now accounts for 60% of the total compared with 44% in FY13: an encouraging feature given the continued growth in the client base.

Exhibit 5: Revenue analysis

£m

2012

2013

2014

2015

2016

Net trading gains

3.4

8.5

7.7

4.1

6.5

Institutional commissions

21.4

28.8

31.9

29.3

31.9

Net institutional income

24.8

37.2

39.6

33.4

38.4

Corporate retainers

6.1

6.9

7.8

8.9

9.6

Deal fees

8.3

6.0

9.0

17.9

16.3

Placing commissions

10.9

27.5

36.5

37.7

48.0

Corporate related

25.3

40.4

53.3

64.6

73.9

Total revenue

50.1

77.7

92.9

98.0

112.3

Source: Numis

On the corporate broking and advisory side of the business, the salient feature was the strength in placing commissions, up 27% in the year (and over four times since 2012). Here there was a particularly good year for block trades where 13 placings had an aggregate value of £1.1bn. As noted above, a total of £1.8bn was raised in IPOs and secondary issues. FY16 was not a particulary strong year for IPOs (see Exhibit 7) but Numis highlights that this high profile and relatively volatile source of income only accounted for 15% of total revenue, underlining the greater stability of large elements of revenue given normal market fluctuations. Otherwise, deal fees were 9% lower following a strong year in FY15 and corporate retainers increased by 8% reflecting the addition of new clients and increases in fee levels, both factors that will continue to flow through to revenues in FY17.

Other operating income swung from a loss of nearly £2m to a positive contribution of £3.8m, largely reflecting fair value movements on investments, including the FP Numis Mid Cap Fund.

Market background and outlook

In this section we review recent activity levels in the UK equity market and the level of corporate activity. This provides a context for considering the outlook for Numis, but its prospects will also depend very much on the work of the various teams in the firm and activity levels in its specific corporate and institutional client base.

Market background: Uncertainty has restrained activity

Exhibits 6 and 7 show the value of equity issuance on the AIM and LSE Main markets over the last three financial years to end September. The first chart, which looks at issuance by market, highlights that the level of issuance on the Main market has been noticeably more volatile than for AIM, particularly in FY16. AIM issuance was consistent between the two halves, while for the Main market the chilling effect of political uncertainty surrounding the EU referendum was much more evident in the second half. The second chart makes clear the greater fluctuation in the level of new issuance compared with further issues. Again the second half of FY16 was a particularly soft period for new issues, tying in with multiple reports of postponed or cancelled IPO plans attributed to restrained market appetite/uncertainty.

Exhibit 6: AIM and Main market issuance

Exhibit 7: New and further issuance – AIM and Main

Source: LSE. Note: To end March (H1) and September (H2).

Source: LSE. Note: To end March (H1) and September (H2).

Exhibit 6: AIM and Main market issuance

Source: LSE. Note: To end March (H1) and September (H2).

Exhibit 7: New and further issuance – AIM and Main

Source: LSE. Note: To end March (H1) and September (H2).

Turning to mergers and acquisitions activity, Exhibit 8 shows figures for UK transactions collected by Bloomberg (in this case deals up to £7bn as these are more relevant to Numis). For the year to September there was a 44% y-o-y decline in the value of transactions, but the number of transactions was only slightly lower (1,522 compared with 1,577). Removing the limit on transaction size makes the value of transactions more volatile over time, but the broad pattern of a post-crisis recovery in activity levels that has recently flattened out (by number) or fallen back (by value) remains in place.

Exhibit 8: UK M&A transactions by value and number

Source: Bloomberg. Note: Quarterly figures for deals up to £7bn in value.

Recent equity market trends as captured by the FTSE All-Share, FTSE AIM All-Share and FTSE Small Cap indices are shown in Exhibit 9. Performance in 2015 and early 2016 was held back by weakening economic expectations, while the EU referendum contributed to subsequent volatility. Nevertheless, market levels can be seen as resilient despite the uncertain background, which restrained equity issuance, as noted above. The performance of the indices over the period shown is differentiated, with AIM showing relative weakness (partly reflecting negative trends for commodity shares in the earlier years) and a period of outperformance for the small-cap index.

Turning to trading activity, we can see from Exhibit 10 that the value of equity trading on the London Stock Exchange order book has been largely range bound in the post-crisis period, although there has been a modest uptrend since 2012. The level of trading during Numis’s FY16 compared with FY15 was modestly lower by value (-5%).

Exhibit 9: FTSE AIM, All-Share and Small Cap indices

Exhibit 10: Average daily value traded LSE order book

Source: Thomson Datastream. Note: Total return series.

Source: London Stock Exchange

Exhibit 9: FTSE AIM, All-Share and Small Cap indices

Source: Thomson Datastream. Note: Total return series.

Exhibit 10: Average daily value traded LSE order book

Source: London Stock Exchange

Outlook: Pent up pipeline

Looking ahead, the negotiation of Brexit seems likely to generate swings in sentiment and adds to normal economic uncertainties. Nevertheless, the economy has proven resilient to the initial surprise of the outcome and remains reasonably robust. Although Brexit negotiating positions appear tough, the reality may prove less challenging economically, meaning a more amenable background for corporate activity and helping to maintain equity market levels. On this scenario, at some point corporate developments that have been deferred may return, providing a more active environment for Numis and other market participants.

The implications of research unbundling mandated in MiFID II and due to be implemented in national legislation in January 2018 remains a potential sensitivity for Numis, as for other brokers. The need for asset managers to pay for or arrange research payment accounts for research and establish quality criteria together with other pressures on active asset managers’ profit margins (see FCA market study) could all have negative implications for a segment of institutional commission income (see Edison white paper for a discussion of the future of research).

On the other hand, it should be noted that Numis’s institutional commissions in FY16 showed further resilience even though some asset managers are reported to be adjusting their approach already. Numis indicates that it has not seen a significant change in its clients’ behaviour to date and, in its own discussions with clients, it has not so far identified a negative trend beyond the general pressure on commissions that has been a feature of the industry for some time.

Even if the prospective changes do indeed result in a contraction in research budgets across the industry, as many commentaries have assumed, then mitigating features for Numis should be the research reputation it has established (evidenced by strong survey rankings, including four years as number one broker in the Extel small- and mid-cap survey), the contribution from US-generated commissions (25% of secondary commission) and the potential to gain share from peers with weaker franchises.

In its full year results commentary, Numis highlighted the development of its ability to conduct private placements. This arises from the Numis Venture Broking team, which focuses on advising fast-growing private companies, and works with seed, venture capital and growth, listed and private equity investors. The team typically meet over 200 companies a year and identify promising companies that it can advise and help introduce to potential investors. As noted earlier, in FY16 Numis took part in a £128m private placement for Skyscanner and since the year end has raised money privately for Oxford Science & Innovation and Accelerated Digital Ventures. This is seen as an exciting growth area, addressing a large existing market that is set to expand as companies choose to stay private longer before considering a listing. From the perspective of investors such as family offices and sovereign wealth funds, there is greater interest in direct private investments in order to avoid the fee drag that would otherwise be incurred on investments through private equity funds. Given Numis’s traditional strength in the small- and mid-cap segment and its ability to call on a broad sectoral research expertise, this appears to be an area with considerable promise in its own right that should also feed into IPO and corporate deal flow in due course.

Drawing these strands together, there are political and economic uncertainties to consider but the starting point is substantially more positive than might have been feared earlier in the year. Regulatory change (MiFID II, research unbundling) could be a negative as implementation approaches but there are mitigating factors for Numis. More generally there is also the positive momentum Numis has demonstrated in developing its franchise with corporate clients and institutions. While relatively small currently, the venture broking piece could become a significant. contributor for the group. Meanwhile, returning to the very near-term outlook, Numis has reported a solid start to the current financial year. In the next section we discuss changes in our estimates and include a sensitivity analysis around our central estimate for the current year.

Financials

Changes in our estimates are summarised in Exhibit 11, now including an estimate for FY18 for the first time. Our revenue estimate for FY17 is slightly lower than previously, reflecting a combination of increased retainer income, increased placing fees (although below the high level recorded in FY16) but a more cautious assumption for deal fees. We have allowed for a contribution to other income of £0.7m from the c £10m seed investment in the FP Numis Mid Cap Fund and other investments. There are minor reductions of 2-3% in our pre-tax profits and earnings per share estimates which we now show on an as-reported IFRS basis to avoid confusion when comparing estimates and because previously excluded share-based payments have been satisfied by cash purchases of shares whilst other income is likely to see continuing positive and negative contributions from investments.

Exhibit 11: Financial summary

Year

Revenue (£m)

PBT (£m)

EPS (p)

DPS (p)

Old

New

Change

Old

New

Change

Old

New

Change

Old

New

Change

09/17e

114.8

113.1

-1.5%

32.7

31.7

-3.0%

21.8

21.3

-2.6%

12.5

12.5

0.0%

09/18e

N/A

115.1

N/A

32.7

N/A

21.9

N/A

13.0

Source: Edison Investment Research

Sensitivity to equity market developments and corporate confidence make forecasts for brokers’ earnings more than usually tentative. So in Exhibit 12 we show an updated version of a scenario analysis we included in a note published in May 2016.

This shows alternative scenarios with revenues 15% higher or lower than our central case. The low case would take revenues just below the FY15 figure but still well above the levels seen before this. However, it should be remembered that the number of corporate clients has increased significantly (Exhibit 1). While the cost/income ratio flexes higher on lower revenues and lower on higher revenue, variable compensation does moderate operational gearing.

Exhibit 12: Illustrative estimate scenarios 2017e

£000s

Downside

Base

Upside

Total income

96,718

113,785

130,853

Non staff costs

(22,400)

(22,400)

(22,400)

Staff costs

(51,776)

(59,709)

(65,554)

Of which share-based payment costs

(6,300)

(6,300)

(6,300)

Total recurring costs

(74,176)

(82,109)

(87,954)

Operating profit before variable staff cost & share based payment costs

46,518

63,586

80,654

Operating profit

22,541

31,676

42,899

Investment income

37

37

37

Pre-tax profit

22,578

31,713

42,936

Tax

(4,290)

(6,563)

(8,158)

Net profit

18,288

25,150

34,778

 

EPS (p)

15.5

21.3

29.4

DPS declared (p)

9.09

12.50

17.28

Pay-out ratio

59%

59%

59%

Reported ROE

14%

19%

25%

Total staff costs as % revenue

54%

52%

50%

Cost/income ratio

77%

72%

67%

Source: Edison Investment Research

The group’s balance sheet has strengthened further, with the net asset value increasing by 11% from FY15 to £129m. The cash balance increased by £29m to £89m, helped by a £9m reduction in current trading assets, including lower net trading book positions (we assume this will partly reverse this year).

Taking a longer view, since the end of FY12, Numis’s cash balance has increased by more than £50m after paying dividends totalling nearly £45m and buying back shares to the value of almost £48m. Net cash flow from operating activities has fluctuated but has averaged £25m per annum.

Numis reports its Pillar I capital requirement at £30m so it has a significant surplus above this and will consider further capital returns, which are likely to be by way of an enlarged share buyback programme (for FY16, buybacks for treasury and the employee benefit trust totalled £6.7m). At this stage we have not factored this into our cash flow or earnings estimates, but in our valuation discussion we use £25m as an indicative figure for surplus capital/cash. This allows for the group’s likely desire to maintain liquidity as well as capital buffers to cater for market fluctuations and swings in collateral requirements for clearing purposes.

Valuation

We have updated our comparative table showing Numis alongside other quoted UK brokers. Given the smaller size and different profile of each of these peers, we have also cast the comparative net wider and added metrics for US/European investment banks together with UK quoted auctioneers, interdealer brokers and estate agents on the argument that these all provide intermediary and or advisory services (Exhibit 13). While the comparability of some of these businesses is arguable, the cross-sectoral list does provide a broader background against which to consider the valuation.

Among the UK brokers, Numis is one of four reporting profits, earns the highest return on equity (despite its cash balances) and trades on an above-average price to book, ranking second on this measure. Looking outside the UK brokers, Numis trades on a P/E ratio discount to US and European investment banks, auctioneers and interdealer brokers. Estate agents, de-rated since the Brexit vote, trade on similar prospective earnings multiples.

Exhibit 13: Peer comparison

Price

Market cap

(£m)

Last reported PER (x)

Current PER (x)

Yield (%)

Price to Book (x)

ROE (%)

UK brokers

(p)

Numis

238.75

270

12.2

11.0

4.8

2.3

22.8

Arden

32.5

6

loss

N/A

0.0

0.9

loss

Cenkos

70.5

40

2.6

14.7

19.9

1.6

10.0

Panmure Gordon

58.5

9

29.3

N/A

0.0

0.5

2.0

Shore Capital

225.0

49

8.3

19.6

0.0

0.8

4.5

WH Ireland

124.5

33

loss

N/A

1.6

2.6

loss

UK brokers average

13.1

15.1

4.4

1.5

9.8

US, European IB and advisory

(US$)

Bank of America

22.5

185,623

16.3

15.2

0.9

0.9

5.7

Evercore

69.7

2,209

60.6

16.6

1.7

6.0

18.1

Goldman Sachs

241.6

82,222

19.6

15.3

1.1

1.3

7.2

Greenhill

28.7

683

34.9

16.4

6.3

3.0

16.1

JP Morgan

87.2

254,490

14.4

14.8

2.0

1.4

9.5

Moelis

34.0

1,508

20.6

20.9

5.6

8.4

19.2

Morgan Stanley

43.1

65,736

14.5

15.5

1.3

1.2

6.9

Stifel

49.9

2,697

37.0

18.8

0.0

1.4

2.6

Credit Suisse

15.5

25,771

loss

58.4

4.5

0.7

-13.3

Deutsche Bank

17.7

20,752

loss

21.1

0.0

0.4

-3.0

UBS

16.3

51,302

loss

15.1

0.0

1.2

6.6

US, European IB average

27.2

20.7

2.1

2.3

6.9

Auctioneers average

38.8

24.7

1.8

3.7

10.3

Interdealer brokers average

26.9

14.1

4.5

2.8

11.1

Estate agents average

10.8

11.7

0.1

1.9

16.7

Source: Bloomberg. Note: Priced at 3 January 2017.

To give a historical perspective, Exhibit 14 shows that Numis is trading modestly above its 10-year average price to book ratio (2.3x versus 1.8x), but at the lower end of its more recent range, probably reflecting elevated market uncertainty during 2016.

Exhibit 14: Historical price to book ratio for Numis

Source: Thomson Datastream, Edison Investment Research

Next we show a comparison of returns on equity and price to book, including both the UK peers and the sectors included in the comparison above. Here the inclusion of the two companies recording losses makes for a wider than normal dispersion, but among the companies and sectors with a positive return on equity Numis appears in line or towards the attractive segment of the grouping, given its relatively high return.

Exhibit 15: Comparing return on equity and price to book ratio

Source: Bloomberg, Edison Investment Research. Note: priced at 3 January 2017.

We have also updated our ROE/COE model; we have used unchanged assumptions for cost of equity (10%), a sustainable return on equity of 20% and growth of 5%. Applying this to the year-end NAV of 113p per share gives an indicative central value of 340p per share, similar to the central value indicated in our last note in October (339p). If we allow for a one-off return of excess capital of £25m, this results in a return on remaining equity of nearly 25% and after adding back the capital return would take the central value to 384p. A sensitivity table (Exhibit 16) shows the values that result when using different growth rates and returns on equity (in this case excluding a return of capital).

Exhibit 16: ROE/COE valuation output variations (value per share, p)

Growth rate (right)

Return on equity

2.0%

4.5%

5.0%

5.5%

6.0%

12%

142

155

159

164

170

16%

199

237

250

265

284

20%

255

320

340

366

397

24%

312

402

431

467

511

28%

369

485

522

567

624

Source: Edison Investment Research

Lastly, we include a table showing the share price movements for the peer group shown earlier. Numis has outperformed the UK broker average but underperformed the investment bank average over one month, three months and a year. The ‘local’ outperformance is understandable by virtue of the returns Numis is earning and the growth in its franchise, but having lagged the US/European investment banking average on a year’s view there may be scope to make good this difference prospectively.

Exhibit 17: Share price performance (%)

1 month

3 months

1 Year

From 12m high

UK brokers

Numis

4.3

7.2

-3.4

-6.2

Arden

-1.5

3.2

8.3

-3.0

Cenkos

-1.4

-25.4

-58.2

-58.9

Panmure Gordon

13.6

21.9

-10.7

-10.7

Shore Capital

-1.1

-8.2

-47.1

-47.1

WH Ireland

2.9

0.0

38.3

-7.8

UK broker average

2.8

-0.2

-12.1

-22.3

US European IB and advisory

Bank of America

6.1

42.6

37.1

-3.7

Evercore

1.5

35.4

31.7

-3.2

Goldman Sachs

8.2

48.9

36.4

-1.6

Greenhill

2.1

22.9

2.6

-1.7

JP Morgan

6.9

31.0

37.1

-0.6

Moelis

22.6

35.3

28.0

-2.6

Morgan Stanley

2.9

34.4

36.8

-2.2

Stifel

0.8

27.9

20.5

-5.6

Credit Suisse

13.9

18.0

-22.5

-23.7

Deutsche Bank

19.4

50.8

-17.4

-19.8

UBS

4.3

18.1

-9.6

-9.7

US, European IB/advisory average

9.0

31.9

12.4

-7.5

Auctioneers average

-1.0

1.2

33.3

-8.3

Interdealer brokers average

3.1

17.5

10.2

-3.7

Estate agents average

3.2

-8.2

-38.2

-41.4

Source: Bloomberg, 3 January 2017.

Exhibit 18: Financial summary

£000s

2014

2015

2016

2017e

2018e

Year end 30 September

PROFIT & LOSS

Revenue

92,862

97,985

112,335

113,085

115,144

Cost of Sales (excl. amortisation and depreciation)

(62,427)

(64,456)

(75,267)

(73,924)

(74,881)

Share based payment (and associated NI) *

(6,130)

(4,666)

(7,082)

(6,930)

(7,040)

EBITDA

24,305

28,863

29,986

32,231

33,223

Depreciation

(384)

(882)

(1,126)

(1,130)

(1,130)

Amortisation

(77)

(111)

(125)

(125)

(125)

Op. profit (incl. share-based payouts pre-except.)

23,844

27,870

28,735

30,976

31,968

Net finance income

477

190

37

37

37

Investment revenues*

49

(1,978)

3,759

700

700

Profit before tax (FRS 3)

24,370

26,082

32,531

31,713

32,705

Tax

(4,311)

(4,533)

(6,132)

(6,025)

(6,214)

Profit after tax (FRS 3)

20,059

21,549

26,399

25,150

25,875

Average number of shares outstanding (m)

117.2

117.6

118.0

118.3

118.2

EPS - diluted FRS3 (p)

17.11

18.32

22.37

21.26

21.88

Dividend per share (p)

10.50

11.50

12.00

12.50

13.00

NAV per share (p)

97.7

102.0

113.5

122.9

132.5

ROE (%)

24%

24%

24%

23%

22%

EBITDA margin (%)

26.2%

29.5%

26.7%

28.5%

28.9%

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

25.7%

28.4%

25.6%

27.4%

27.8%

BALANCE SHEET

Fixed assets

4,337

6,724

5,522

4,767

4,012

Current assets

425,910

279,114

312,462

323,947

335,614

Total assets

430,247

285,838

317,984

328,714

339,626

Current liabilities

(320,170)

(170,319)

(188,895)

(188,895)

(188,895)

Long term liabilities

0

0

(12)

(12)

(12)

Net assets

110,077

115,519

129,077

139,807

150,719

CASH FLOW

Operating cash flow

21,164

6,467

48,735

27,278

28,103

Net cash from investing activities

323

(3,632)

84

(73)

(73)

Net cash from (used in) financing

(17,958)

(17,510)

(19,580)

(20,720)

(21,363)

Net cash flow

3,529

(14,675)

29,239

6,485

6,667

Opening net (cash)/debt

(71,205)

(74,518)

(59,591)

(89,002)

(95,487)

Fx effect

(216)

(252)

172

0

0

Closing net (cash)/debt

(74,518)

(59,591)

(89,002)

(95,487)

(102,154)

Source: Numis accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Numis Corporation and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Level 25, Aurora Place

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New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Numis Corporation and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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