Share plc — Making good progress

Share plc — Making good progress

Share’s third quarter update confirmed the positive trends reported in August, with further market share gains and continuing work on its digital transformation providing evidence of the fruits of the investment already made and signalling continued measures to improve the customer experience to underpin further, profit-enhancing growth.

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Share

Making good progress

Q3 trading update

Financial services

27 October 2017

Price

26p

Market cap

£37m

Net cash (£m) at end June 2017

7.8

Shares in issue

143.7m

Free float

31%

Code

SHRE

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.9)

(3.7)

(7.1)

Rel (local)

(4.6)

(4.5)

(14.8)

52-week high/low

29.0p

23.8p

Business description

Share plc’s principal business is The Share Centre, which is a self-select retail stockbroker that also offers share services for corporates and employees. Commission and account fees account for the majority of income.

Next events

FY17 results

March 2018

Analyst

Andrew Mitchell

+44 (0)20 3681 2500

Share is a research client of Edison Investment Research Limited

Share’s third quarter update confirmed the positive trends reported in August, with further market share gains and continuing work on its digital transformation providing evidence of the fruits of the investment already made and signalling continued measures to improve the customer experience to underpin further, profit-enhancing growth.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/15

14.1

0.6

0.40

0.74

65.0

2.8

12/16

14.6

0.0

0.00

0.25

N/A

1.0

12/17e

18.0

0.5

0.29

0.30

89.7

1.2

12/18e

19.0

0.8

0.43

0.50

60.5

1.9

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

Strong revenues and market share

Share’s Q3 update indicated that trading has been in line with its own expectations, upgraded following the half year results announcement in August. Revenues, excluding interest, were up 29% compared with Q316 led by commission revenue. This was up 54% in the period, benefiting from the full inclusion of Computershare services in the quarter, including certificated and nominee dealing. Market share of revenue (ex-interest) against a Compeer-collected peer group has shown a marked increase, standing at 13.9% for the quarter against 10.0% in Q316. Assets under administration at the end of the period stood at £4.5bn, up 24% y-o-y or 6% q-o-q. An encouraging milestone in the continuing digital investment programme was the addition of functionality to The Share Centre’s app this month allowing clients to fund their accounts and trade within the app. (See Exhibits 1 and 2 overleaf for charts providing an analysis of revenue changes and market share history.)

Outlook

The UK equity market has experienced a period of significant strength since early 2016 and recent volatility has been subdued, so there is a risk of correction against an uncertain macro background. Indeed, Share notes that peer trading volumes in Q3 were down 6% y-o-y (its own volumes were up 4%) and investor sentiment appears to have softened somewhat (Exhibit 4). On a longer view, Share’s focus on customer experience, investment in IT and flat fee structure should mean it is well placed to retain and extend its market share gains through market cycles.

Valuation

A DCF valuation allows us to take account of near-term muted profitability while capturing the potential gains from operational gearing and growing scale. Our estimates have not changed since our last note in September and therefore, with other assumptions as before, our indicative DCF valuation is also unchanged at 30.5p.

Industry developments and further background

Two interesting announcements have come from competitor, Interactive Investor (II). The first related to the new fee structure it will adopt following its takeover of the TD Direct platform. The new fee basis includes a flat fee, as at The Share Centre, with no percentage platform fee for holding funds as at TD Direct, but is slightly higher than II’s previous tariff (£90 per annum versus £80 with the dealing cost (£10) unchanged or £6 for frequent traders versus £5). From a Share perspective this would appear to be neutral or encouraging in that the enlarged company has not chosen to be more aggressive with its pricing. The second announcement was the purchase of Trustnet Direct’s platform, which II already runs on a white label basis. II has also reached agreements with other partners that white label II’s platform to transfer customers to the II brand. The partners include Telegraph Investor, The Motley Fool, and SharePrice. This can be seen as increasing competitive pressure in terms of brand profile and scale, but it will be difficult to separate this effect from other factors that are likely to come into play.

Exhibit 1 shows the y-o-y percentage changes in revenue for Share and a Compeer-collected peer group.1 The jump in interest income for Share follows a period of decline and primarily reflected the Direction from the FCA allowing The Share Centre to deposit up to 60% of client money balances for up to 95 days. Exhibit 2 highlights the upward trend in Share’s revenue market share.

Alliance Trust Savings, Barclays Stockbrokers, Equiniti, Halifax Share Dealing (Lloyds Bank), HSBC Stockbrokers, Saga Personal Finance, Selftrade and TD Direct Investing. Industry leader Hargreaves Lansdown is excluded because it does not submit monthly information to Compeer.

Exhibit 1: Q3 % changes in revenue, SHRE and peers

Exhibit 2: Share plc revenue market share progress

Source: Share plc, Compeer. Note: Versus Q316.

Source: Share plc, Compeer

Exhibit 1: Q3 % changes in revenue, SHRE and peers

Source: Share plc, Compeer. Note: Versus Q316.

Exhibit 2: Share plc revenue market share progress

Source: Share plc, Compeer

The next two charts show trends in the UK equity market, retail fund sales and investor confidence.

Exhibit 3: FTSE All-Share and FTSE 100 Volatility

Exhibit 4: Fund sales and investor sentiment index

Source: Thomson Datastream

Source: Investment Association, Lloyds Bank

Exhibit 3: FTSE All-Share and FTSE 100 Volatility

Source: Thomson Datastream

Exhibit 4: Fund sales and investor sentiment index

Source: Investment Association, Lloyds Bank

Exhibit 5: Financial summary

£000

2014

2015

2016

2017e

2018e

Year end 31 December

PROFIT & LOSS

Account fees

6,610

6,400

6,784

7,530

7,831

Dealing Commissions

6,610

6,400

7,040

9,786

10,373

Interest and other income

1,800

1,250

786

711

769

Revenue

 

15,042

14,050

14,610

18,027

18,973

Cost of Sales (exc amortisation and depreciation)

(14,579)

(14,812)

(15,727)

(18,003)

(18,725)

EBITDA

 

463

(762)

(1,117)

23

248

Depreciation

 

(104)

(111)

(121)

(131)

(150)

Amortisation

(11)

(21)

(108)

(390)

(400)

Operating profit (pre-exceptional)

 

348

(894)

(1,346)

(498)

(302)

Exceptionals

0

0

0

900

0

Other

60

1,479

2,119

67

0

Investment revenues

308

276

248

220

198

Profit Before Tax (FRS 3)

 

716

861

1,021

689

(104)

Profit Before Tax (norm)

 

1,615

584

(46)

516

768

Tax

(109)

(196)

(284)

(133)

0

Profit After Tax (FRS 3)

 

607

665

737

557

(104)

Profit After Tax (norm)

 

1,416

555

4

409

602

Average Number of Shares Outstanding (m) - exc treasury

143.5

139.2

139.3

139.7

139.7

EPS - normalised (p)

 

0.99

0.40

0.00

0.29

0.43

EPS - FRS3 (p)

 

0.42

0.48

0.53

0.40

(0.07)

Dividend per share (p)

0.62

0.74

0.25

0.30

0.50

EBITDA Margin (%)

3.1%

(5.4%)

(7.6%)

0.1%

1.3%

Normalised operating margin (%)

8.3%

2.2%

(2.0%)

(3.4%)

3.0%

BALANCE SHEET

Fixed Assets (mainly Investments)

 

9,405

8,083

8,341

9,753

9,903

Current Assets

 

21,316

19,716

23,883

21,980

22,509

Total Assets

 

30,721

27,799

32,224

31,733

32,412

Current Liabilities

 

(8,450)

(7,681)

(13,384)

(11,830)

(12,430)

Long term Liabilities

(1,594)

(1,418)

(1,096)

(1,158)

(1,158)

Net Assets

 

20,677

18,700

17,744

18,745

18,824

CASH FLOW

Operating Cash Flow

 

199

(2,104)

492

1,092

250

Net cash from investing activities

(434)

1,990

483

(1,495)

(502)

Net cash from (used in) financing

(736)

(878)

(1,217)

(590)

(419)

Net Cash Flow

 

(971)

(992)

(242)

(993)

(671)

Opening net (debt)/cash

 

13,626

12,655

11,663

11,421

10,428

Closing net (debt)/cash

 

12,655

11,663

11,421

10,428

9,757

Source: Company accounts, Edison Investment Research

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 Share 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

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

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Share 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

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

Research: TMT

Osirium Technologies — Diverse customer base highlights the opportunity

Osirium is making good progress in renewing contracts and signing new customers. We are initiating forecasts based on the assumption that the company will grow bookings at a rate of 63% in FY17, 50% in FY18 and 40% in FY19. We forecast that this will result in an EBITDA loss of £1.9m in FY17 reducing to £1.6m by FY19. We estimate that the current share price is factoring in longer-term bookings growth of 29% (average FY20-26) which, based on the company’s ‘land and expand’ strategy and focus on selling to the mid-market via distributors, appears achievable in our view.

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