Numis Corporation — Comfortably ahead

Numis Corporation (LSE: NUM)

Last close As at 18/04/2024

GBP3.43

0.00 (0.00%)

Market capitalisation

GBP402m

More on this equity

Research: Financials

Numis Corporation — Comfortably ahead

Numis issued an upbeat trading statement at the end of July signalling that activity has been strong since the end of March and that revenue and profit for the current year to end September are likely to be comfortably ahead of the prior year. We have increased our estimate accordingly while holding our FY18 forecast steady on a precautionary basis. The recent pick up in trading is evidence of how the strength of the franchise pays off in favourable market conditions and provides an encouraging backdrop as board changes signal further measured evolution in management.

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Financials

Numis Corporation

Comfortably ahead

Trading update

Financial services

7 August 2017

Price

261.25p

Market cap

£282m

Net cash (£m) at 31 March 2017

71.2

Shares in issue, excl. treasury shares

107.9m

Free float

58.5%

Code

NUM

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.9

(5.5)

43.4

Rel (local)

6.4

(8.5)

27.5

52-week high/low

286.2p

188.2p

Business description

Numis is one of the UK's leading independent corporate advisory and stockbroking groups, offering a full range of research, execution, equity capital markets, corporate broking and advisory services. It employs over 200 staff in offices in London and New York, and at end March 2017 had 199 corporate clients.

cclients.

Next events

Final results

early December

Analysts

Andrew Mitchell

+44 (0)20 3681 2500

Martyn King

+44 (0)20 3077 5745

Numis Corporation is a research client of Edison Investment Research Limited

Numis issued an upbeat trading statement at the end of July signalling that activity has been strong since the end of March and that revenue and profit for the current year to end September are likely to be comfortably ahead of the prior year. We have increased our estimate accordingly while holding our FY18 forecast steady on a precautionary basis. The recent pick up in trading is evidence of how the strength of the franchise pays off in favourable market conditions and provides an encouraging backdrop as board changes signal further measured evolution in management.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/15

98.0

26.1

18.3

11.5

14.3

4.4

09/16

112.3

32.5

22.4

12.0

11.7

4.6

09/17e

126.0

35.1

23.8

12.0

11.0

4.6

09/18e

119.5

30.8

21.0

12.5

12.4

4.8

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

Trading update and board changes

Numis issued a positive trading update on 28 July indicating that, since the end of March, its Equities business has continued to perform well while Corporate Broking and Advisory has seen a marked increase in the size of equity issuance transactions with average fees substantially higher than in the first half. Hence, subject to trading in August and September, the company expects full year revenue and profit to be comfortably ahead of the prior year. Numis also announced that three executive board directors will be standing down between September this year and January 2018; this will leave a board more balanced with regard to executive and non-executive directors (see page 2).

Outlook

Reflecting the trading update we have increased our revenue estimate for FY17 by nearly 8% which results in an increase of over 15% in earnings per share. Most of the increase in forecast revenues relates to placing commissions (further detail overleaf). Given the potential for renewed market volatility and lower corporate and market activity together with uncertainty over the possible impacts as MiFID II is implemented, we are leaving our FY18 forecasts unchanged for the moment. However, if market confidence is sustained, this could prove conservative. On a longer view, Numis continues to work on developing its franchise further through initiatives such as its Venture Broking activity which addresses the opportunity to provide funding and advice to private companies.

Valuation: Still on a cautious rating

Numis shares have responded to recent more positive trading news but remain modestly rated in terms of P/E multiples compared with peers (page 4), while our central ROE/COE valuation (323p vs 318p before) points to upside of more than 20%.

FY17 estimates increased and board changes

Revised estimates following trading update

As noted above, Numis reported strong trading between end March and July with equity issuance and, to some extent, M&A activity contributing to the improved outlook for the full year. Exhibit 1 shows that UK equity market levels have shown resilience in the face of uncertainty over the political and economic outlook and (not shown) the value of trading activity on the London Stock Exchange has also demonstrated progress. Exhibit 2 shows total issuance for the AIM and Main markets and for Numis’ Q3 period to end June. The value of new and follow on issuance was ahead of H216 on a pro rata basis, led by Main market activity. Compared with the H117 period, the Q3 run rate is similar.

Exhibit 1: FTSE AIM, All-Share and Small Cap indices

Exhibit 2: AIM and Main market issuance

Source: Thomson Datastream. Note: total return series

Source: LSE. Note: H1 to end Mar, Q3 to end Jun, H2 to end Sep

Exhibit 1: FTSE AIM, All-Share and Small Cap indices

Source: Thomson Datastream. Note: total return series

Exhibit 2: AIM and Main market issuance

Source: LSE. Note: H1 to end Mar, Q3 to end Jun, H2 to end Sep

Numis therefore appears to have performed more strongly than the overall market in recent months. Transactions contributing to this include the recent Alfa Financial Software, Nexus Infrastructure and Sherborne Investors IPOs and secondary raises for Draper Esprit, IP Group and INPP and a significant block trade for Countryside. M&A deals pending or completed include IP’s purchase of Touchstone (over £500m), the acquisition of 32 Red by Kindred (c £170m), the c £2bn offer by SNC-Lavalin for Atkins and the sale of former SVG Capital plc (Sole Realisation Company) assets (over £900m). These and other transactions appear likely to contribute to FY17 pre-tax profit c 8 % ahead of the prior year (our interpretation of “comfortably ahead”). Within our revenue estimate the main increase is for placing commissions (see Exhibit 3 below), while we have allowed for a modest upgrade of advisory fees and left other segments unchanged.

Exhibit 3: Revenue and total income estimate changes

£m

Old

New

Unchanged

Change

09/17e

09/17e

09/18e

09/17e

Net trading gains

9.0

9.0

7.0

0.0%

Institutional commissions

35.9

35.9

35.0

0.0%

Net institutional income

44.9

44.9

42.0

0.0%

Corporate retainers

11.6

11.6

12.0

0.0%

Advisory fees

15.9

16.9

18.5

6.3%

Placing commissions

44.5

52.6

47.0

18.3%

Total revenue

116.9

126.0

119.5

7.8%

Other operating income

3.0

3.0

0.7

0.0%

Total income

119.9

129.0

120.2

7.6%

Source: Edison Investment Research

Below the revenue line the main change is in our staff cost assumption with an increase in variable compensation diluted by fixed costs resulting in a sub-5% increase in overall costs allowing operational gearing to come into play and our EPS estimate to increase by over 15% (exhibit 4).

Exhibit 4: Estimate revisions

Revenue (£m)

PBT (£m)

EPS (p)

DPS (p)

Old

New

Change

Old

New

Change

Old

New

Change

Old

New

Change

09/17e

116.9

126.0

7.8%

30.1

35.1

16.8%

20.6

23.8

15.4%

12.0

12.0

0.0%

09/18e

119.5

119.5

0.0%

30.8

30.8

0.0%

21.0

21.0

0.0%

12.5

12.5

0.0%

Source: Edison Investment Research

Further details of our estimates including balance sheet and cash flow figures are included in our financial summary (Exhibit 9).

Board changes

Numis also announced three prospective board changes. Finance director Simon Denyer is to step down from the board and leave in January 2018 after more than 11 years with the company. Following 16 years at Numis as a leading media analyst and more recently as head of media banking, Lorna Tilbian is to stand down and leave the company at the end of 2017. Finally, Marcus Chorley is to stand down from the board in September but will remain in his role as chairman of equities.

Andrew Holloway will succeed Simon Denyer as finance director having joined Numis in 2009 following roles in corporate finance and corporate broking at Deloitte and Dresdner Kleinwort Wasserstein. He is currently managing director and head of FIG within the Corporate Broking and Advisory department.

The changes, in part, reflect the normal process of individual directors reaching a stage at which they wish to pursue other interests. Also, following the succession planning which lead to the appointment of new co-CEOs last year, the company has sought a more streamlined board with greater balance between executive and non-executive directors. The prospective board composition in Exhibit 5 shows the new shape of the board once the announced changes have taken place.

Exhibit 5: Prospective board composition and changes

Board members

Role

Date of joining

Prospective board following announced changes

Executive directors

Alex Ham

Co-CEO

Sep-16

Ross Mitchinson

Co-CEO

Sep-16

Andrew Holloway

CFO

Jan-18

Independent non-executive directors

Alan Carruthers

Chairman

Mar-17

Geoffrey Vero

Apr-03

Robert Sutton

May-14

Catherine James

May-14

Prospective and recent board departures

Date standing down

Oliver Hemsley

Founder and former CEO remains as adviser at least until May 2018

May-17

Marcus Chorley

Chairman of equities stepping down from board but remains in current role

Sep-17

Lorna Tilbian

Head of media sector - leaving company December 2017

Sep-17

Simon Denyer

Group finance director and co. secretary - leaving company

Jan-18

Source: Edison Investment Research, Numis Corporation


Valuation

In the table below we have updated our comparison with UK brokers and US/European investment banks. As a supplementary reference we also include average figures for auctioneers, interdealer brokers and estate agents on the basis that they act as intermediaries and provide advisory services. The significant differentiation of these businesses qualifies the comparison but in broad terms we can see that Numis trades below the average level of P/Es for each sector and on a higher yield. In terms of price to book it is similar to or below the averages with an above average ROE.

Exhibit 6: Peer comparison

Price

(local)

Market cap (£m)

Last reported PER (x)

Current PER (x)

Yield (%)

Price to Book (x)

ROE (%)

UK brokers

Numis

258.75

281

11.0

10.9

4.6

2.2

17.4

Arden

43.5

14

loss

0.0

1.4

-14.8

Cenkos

100.0

57

21.3

8.9

6.0

2.1

10.0

Shore Capital

252.5

54

42.1

19.3

2.0

0.9

2.2

WH Ireland

147.0

41

loss

0.0

3.0

-6.9

UK brokers average

24.8

13.0

2.5

1.9

1.6

US European IB and advisory

Bank of America

24.5

182,382

15.5

13.5

1.0

1.0

7.4

Evercore

78.6

3,873

28.7

15.3

1.6

6.7

41.0

Goldman Sachs

226.2

69,936

13.7

12.3

1.1

1.2

10.6

Greenhill

18.1

405

9.5

34.2

9.9

1.9

20.3

JP Morgan

92.7

248,895

14.9

13.7

2.0

1.4

10.7

Moelis

40.2

2,030

21.9

18.3

8.4

7.9

21.6

Morgan Stanley

47.1

65,842

15.8

13.6

1.5

1.3

9.1

Stifel

50.0

2,584

43.1

14.6

0.0

1.3

4.5

Credit Suisse

14.9

29,726

loss

19.5

4.5

0.9

-3.8

Deutsche Bank

15.1

28,053

loss

14.2

1.1

0.5

-1.4

UBS

17.5

50,923

loss

12.9

0.0

1.2

7.7

US, European IB/average

20.4

16.5

2.8

2.3

11.6

Auctioneers average

33.6

22.9

1.8

3.9

14.2

Interdealer brokers average

28.9

16.6

4.7

2.8

8.7

Estate agents average

18.3

16.9

2.3

1.9

8.1

Source: Bloomberg. Note: Priced at 2 August 2017.

Our ROE/COE model, using assumptions of an ROE of 19% (equivalent to the 2014-18e average), a cost of equity of 10% and growth of 5%, applied to the H117 NAV gives central value of 323p (318p previously based on the FY16 NAV). The sensitivity of this valuation to changing growth and ROE assumptions is illustrated in Exhibit 7.

Exhibit 7: 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%

144

157

162

167

173

16%

202

241

254

269

289

19%

245

304

323

346

375

24%

318

409

439

475

520

28%

375

493

531

577

635

Source: Edison Investment Research

Finally, Exhibit 8 compares the recent share price performance for UK brokers and US/European investment banks. Here there is significant variation but from 12 month highs Numis’ performance has been similar to both the UK and investment bank averages. More recently, while the share price has bounced quite sharply in response to encouraging trading news, the three-month return remains negative, perhaps supporting the idea that there is further scope for rerating.

Exhibit 8: Share price performance (%)

1 Month

3 Months

1 Year

YTD

From 12m high

Numis

5.7

-6.4

42.2

5.3

-10.9

Arden

6.1

27.9

77.6

29.9

-1.1

Cenkos

2.0

-12.7

-18.4

38.9

-24.8

Shore Capital

0.0

2.0

1.0

12.2

0.0

WH Ireland

4.3

13.1

50.8

20.5

-5.2

UK broker average

3.6

4.8

30.6

21.3

-8.4

US European IB and advisory

Bank of America

1.0

4.2

73.5

10.9

-5.0

Evercore

11.5

5.3

59.9

14.4

-5.7

Goldman Sachs

1.9

0.5

44.9

-5.5

-11.3

Greenhill

-10.0

-27.9

-3.5

-34.7

-44.2

JP Morgan

1.5

7.2

45.7

7.5

-1.9

Moelis

3.3

8.7

74.9

21.6

-10.5

Morgan Stanley

5.7

8.7

68.3

11.5

-1.9

Stifel

8.7

3.2

47.0

0.1

-11.7

Credit Suisse

7.6

6.6

54.8

10.8

-2.2

Deutsche Bank

-2.5

-9.2

51.0

-1.7

-15.1

UBS

3.1

4.8

39.7

15.7

-4.4

US, European IB/advisory average

2.2

0.3

47.0

2.8

-11.5

Source: Bloomberg. Note: Priced at 2 August 2017.

Exhibit 9: Financial summary

£'000s

2015

2016

2017e

2018e

Year end 30 September

PROFIT & LOSS

Revenue

 

 

97,985

112,335

126,038

119,500

Other operating income

 

 

(1,978)

3,759

2,991

700

Total income

 

 

96,007

116,094

129,029

120,200

Cost of Sales (excl. amortisation and depreciation)

(65,018)

(76,120)

(81,017)

(78,247)

Share based payment

(4,104)

(6,229)

(11,675)

(10,000)

EBITDA

 

 

28,863

29,986

33,346

31,253

Depreciation

 

 

(882)

(1,126)

(1,214)

(1,214)

Amortisation

(111)

(125)

(88)

(88)

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

 

 

27,870

28,735

32,044

29,951

Net finance income

190

37

100

100

Other operating income

(1,978)

3,759

2,991

700

Profit Before Tax

 

 

26,082

32,531

35,135

30,751

Tax

(4,533)

(6,132)

(7,135)

(5,995)

Profit after tax (FRS 3)

 

 

21,549

26,399

28,000

24,756

Average diluted number of shares outstanding (m)

117.6

118.0

117.5

118.1

EPS - basic (p)

19.5

23.5

25.1

22.1

EPS - diluted (p)

 

 

18.3

22.4

23.8

21.0

Dividend per share (p)

11.50

12.00

12.00

12.50

NAV per share (p)

102.0

113.5

127.5

136.9

ROE (%)

19%

22%

20%

17%

EBITDA margin (%)

29.5%

26.7%

26.5%

26.2%

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

28.4%

25.6%

25.4%

25.1%

BALANCE SHEET

Fixed assets

 

 

6,724

5,522

5,580

4,778

Current assets

 

 

279,114

312,462

331,439

342,574

Total assets

 

 

285,838

317,984

337,019

347,352

Current liabilities

 

 

(170,319)

(188,895)

(192,835)

(192,835)

Long term liabilities

0

(12)

(11)

(11)

Net assets

 

 

115,519

129,077

144,173

154,506

CASH FLOW

Operating cash flow

 

 

6,467

48,735

35,129

30,658

Net cash from investing activities

(3,632)

84

(119)

(100)

Net cash from (used in) financing

(17,510)

(19,580)

(25,858)

(24,423)

Net cash flow

 

 

(14,675)

29,239

9,152

6,135

Opening net (cash)/debt

 

 

(74,518)

(59,591)

(89,002)

(97,979)

Fx effect

 

 

(252)

172

(175)

0

Closing net (cash)/debt

 

 

(59,591)

(89,002)

(97,979)

(104,114)

Source: Edison Investment Research, Numis Corporation accounts

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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.
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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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

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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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