Numis Corporation — Market share gains but no H2 pick-up

Numis Corporation (LSE: NUM)

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Research: Financials

Numis Corporation — Market share gains but no H2 pick-up

Numis’s year-end update confirmed that the low levels of corporate activity seen in the first half persisted through the rest of the year. In these circumstances, matching first half revenues can be seen as a reasonable outcome for H219. FY19 revenue and profit are therefore set to be significantly lower y-o-y, but the franchise remains strong, with positive indicators including increases in corporate client numbers, private market revenues and market share within Equities. The potential for a substantial bounce back in earnings once conditions improve remains in place. In the meantime, reassurance is provided by the strong balance sheet position and continued commitment to developing the franchise.

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Financials

Numis Corporation

Market share gains but no H2 pick-up

FY19 trading update

Financial services

1 October 2019

Price

226.5p

Market cap

£241m

Net cash (£m)at end March 2019

78.9

Shares in issue

106.5m

Free float

75%

Code

NUM

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.0)

(15.7)

(31.9)

Rel (local)

(6.6)

(15.8)

(30.8)

52-week high/low

335p

222p

Business description

Numis is one of the UK's leading independent investment banking groups, offering a full range of research, execution, equity capital markets, corporate broking and advisory services. It employs c 270 staff in offices in London and New York, and at the end of September 2019 had 217 corporate clients.

Next events

FY19 results

4 December 2019

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’s year-end update confirmed that the low levels of corporate activity seen in the first half persisted through the rest of the year. In these circumstances, matching first half revenues can be seen as a reasonable outcome for H219. FY19 revenue and profit are therefore set to be significantly lower y-o-y, but the franchise remains strong, with positive indicators including increases in corporate client numbers, private market revenues and market share within Equities. The potential for a substantial bounce back in earnings once conditions improve remains in place. In the meantime, reassurance is provided by the strong balance sheet position and continued commitment to developing the franchise.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/16

112.3

32.5

22.4

12.0

10.1

5.3

09/17

130.1

38.3

25.9

12.0

8.7

5.3

09/18

136.0

31.6

23.0

12.0

9.8

5.3

09/19e

111.6

13.8

9.6

12.0

23.4

5.3

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

FY19 trading update

Numis’s full year trading update indicated that second half revenues remained in line with the first half. Full year revenues are therefore expected to see a mid- to high-teens percentage decline y-o-y with profits falling further given the impact of operational gearing. Investment banking has been particularly affected by lower M&A and capital markets activity, while equity trading activity has also been depressed. Positively, the number of corporate clients increased from 210 to 217 during the year. Numis’s Equities business saw an improvement in second half revenues as the trading book performed better, and execution and research income was maintained, implying some market share gain here. Private markets transactions, an area in which Numis has invested, increased revenues and included a $460m fund-raise for Klarna, the Swedish fintech business. Other points from the update are noted overleaf.

Background remains uncertain

While the UK’s political impasse continues, strategic business decisions are likely to be deferred and reduced capital markets activity to continue. However, with a corporate client list now standing at 217, and an equities franchise that has proved resilient and appears to be gaining share, Numis is well placed to benefit when greater certainty returns to the market.

Estimates adjusted to reflect flat H2 revenues

Reducing our revenue assumption to match the flat revenues expected in the second half has an operationally geared impact on our FY19 EPS estimate, resulting in a 24% reduction. Subject to any decision to invest further in the franchise, the gearing on a recovery in revenue should be equally marked.

Other points from the update

Costs have been contained with the headcount held steady, but longer-term growth plans and strategy remain in place.

With the existing London office lease approaching expiry, a lease for larger new office space has been signed. Relocation is expected in the second half of FY21 involving a £3m increase in annual property costs (including the impact of IFRS 16) and, we assume, some temporary double running costs.

Estimate revisions

The changes in the headline figures from our estimate are set out in the table below and further details of the new estimate are shown in the financial summary. Our previous estimate allowed for a modest improvement in second half revenues and the new forecast adjusts to a flat outcome versus the first half. On costs, our assumption for fixed staff costs is little changed and we had already allowed for a compression of variable compensation as a percentage of pre-bonus profit. Operational gearing means that pre-tax profit and EPS estimates are 24% below our previous estimate.

Exhibit 1: Estimate revisions

Revenue (£m)

PBT (£m)

EPS (p)

DPS (p)

Old

New

Change

Old

New

Change

Old

New

Change

Old

New

Change

09/19e

117.6

111.6

-5.1%

18.1

13.8

-23.9%

12.7

9.6

-23.9%

12.0

12.0

0.0%

Source: Edison Investment Research

Trading background

The two charts below show the value of new and further issuance for the London Stock Exchange Main and AIM markets. For the 11 months to end August, the value of Main market new issuance was 20% ahead of the prior year period, but this was much more concentrated in fewer names as the number of issues fell by 14%. The value of further issuance was broadly flat. On AIM the picture has been much more depressed with the value of new and further issuance down 65% and 47% respectively.

Exhibit 2: LSE main market new and further issuance

Exhibit 3: LSE AIM new and further issuance

Source: London Stock Exchange

Source: London Stock Exchange

Exhibit 2: LSE main market new and further issuance

Source: London Stock Exchange

Exhibit 3: LSE AIM new and further issuance

Source: London Stock Exchange

Exhibit 4 illustrates recent equity market performance highlighting the relative weakness of the FTSE All-Share AIM index (-19% over 12 months), which undoubtedly fed into the weakness in issuance shown above. The FTSE All-Share and Small Cap indices are little changed over 12 months. The second chart shows the trend in London Stock Exchange order book trading; in the last 12 months the average daily value traded was down 7%.

Exhibit 4: FTSE AIM, All-Share and Small Cap indices

Exhibit 5: LSE order book, average daily value traded

Source: Refinitiv. Note: Total return indices.

Source: London Stock Exchange (Main Market)

Exhibit 4: FTSE AIM, All-Share and Small Cap indices

Source: Refinitiv. Note: Total return indices.

Exhibit 5: LSE order book, average daily value traded

Source: London Stock Exchange (Main Market)


Exhibit 6: Financial summary

£'000s

2015

2016

2017

2018

2019e

Year end 30 September

PROFIT & LOSS

Revenue

 

 

97,985

112,335

130,095

136,047

111,600

Administrative expenses (excl. amortisation and depreciation)

(65,018)

(76,120)

(83,626)

(94,603)

(85,617)

Share based payment

(4,104)

(6,229)

(10,454)

(10,583)

(11,000)

EBITDA

 

 

28,863

29,986

36,015

30,861

14,983

Depreciation

 

 

(882)

(1,126)

(1,226)

(1,113)

(1,100)

Amortisation

(111)

(125)

(89)

(49)

(30)

Operating Profit (before amort. and except).

 

 

27,870

28,735

34,700

29,699

13,853

Net finance income

190

37

188

212

810

Other operating income

(1,978)

3,759

3,431

1,733

(900)

Profit before tax

 

 

26,082

32,531

38,319

31,644

13,763

Tax

(4,533)

(6,132)

(7,942)

(4,967)

(2,684)

Profit after tax (FRS 3)

 

 

21,549

26,399

30,377

26,677

11,079

Average diluted number of shares outstanding (m)

117.6

118.0

117.2

115.8

114.9

EPS - basic (p)

19.5

23.5

27.4

25.1

10.5

EPS - diluted (p)

 

 

18.3

22.4

25.9

23.0

9.6

Dividend per share (p)

11.50

12.00

12.00

12.00

12.00

NAV per share (p)

102.0

113.5

125.0

135.0

133.6

ROE (%)

19%

22%

23%

19%

7.8%

EBITDA margin (%)

29.5%

26.7%

27.7%

22.7%

13.4%

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

28.4%

25.6%

26.7%

21.8%

12.4%

BALANCE SHEET

Fixed assets

 

 

6,724

5,522

6,147

8,215

6,103

Current assets

 

 

279,114

312,462

407,850

533,033

373,563

Total assets

 

 

285,838

317,984

413,997

541,248

379,666

Current liabilities

 

 

(170,319)

(188,895)

(280,371)

(398,112)

(239,378)

Long term liabilities

0

(12)

0

0

0

Net assets

 

 

115,519

129,077

133,626

143,136

140,288

CASH FLOW

Operating cash flow

 

 

6,467

48,735

43,369

45,830

(7,771)

Net cash from investing activities

(3,632)

84

(198)

(1,014)

350

Net cash from (used in) financing

(17,510)

(19,580)

(36,359)

(29,035)

(25,102)

Net cash flow

 

 

(14,675)

29,239

6,812

15,781

(32,523)

Opening net (cash)/debt

 

 

(74,518)

(59,591)

(89,002)

(95,852)

(111,673)

FX effect

 

 

(252)

172

38

40

5

Closing net (cash)/debt

 

 

(59,591)

(89,002)

(95,852)

(111,673)

(79,155)

Source: Edison Investment Research, Numis Corporation accounts


General disclaimer and copyright

This report has been commissioned by Numis Corporation and prepared and issued by Edison, in consideration of a fee payable by Numis Corporation. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Numis Corporation and prepared and issued by Edison, in consideration of a fee payable by Numis Corporation. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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