Share — Resilient first quarter

Share — Resilient first quarter

The first quarter provided a challenging background for trading activity on Share’s platform but, helped by earlier acquisitions, it achieved a small increase in commission and fee revenue and recorded an operating profit, as in H218. The full benefits of Share’s digital transformation and its acquisition strategy are set to become evident over a number of years.

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Share

Resilient first quarter

Q119 trading update

Financial services

30 May 2019

Price

33p

Market cap

£46m

Net cash (£m) at end December 2018

9.0

Shares in issue

138.9m

Free float

31%

Code

SHRE

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

20.4

37.4

30.8

Rel (local)

24.8

35.8

39.6

52-week high/low

36.00p

22.75p

Business description

Share’s main subsidiary is The Share Centre, which is a self-select retail stockbroker that also offers share services for corporates and employees.

Next events

AGM

5 June 2019

Analysts

Andrew Mitchell

+44 (0)20 3681 2500

Martyn King

+44 (0)20 3077 5745

Share plc is a research client of Edison Investment Research Limited

The first quarter provided a challenging background for trading activity on Share’s platform but, helped by earlier acquisitions, it achieved a small increase in commission and fee revenue and recorded an operating profit, as in H218. The full benefits of Share's digital transformation and its acquisition strategy are set to become evident over a number of years.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17

18.7

0.4

0.27

0.40

120.1

1.2

12/18

21.0

0.7

0.45

0.55

73.7

1.7

12/19e

22.3

1.3

0.75

0.70

44.2

2.1

12/20e

23.0

1.5

0.86

0.75

38.3

2.3

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

Q119 trading update and II approach

Share's Q119 trading update in May signalled a resilient performance against the background of subdued London Stock Exchange trading (number and value of trades were down 27% and 24% respectively y-o-y). Share commission and fee revenues were up 2% y-o-y, while those of its Compeer-collected peer group were down 3%. Market share versus peers increased from 3.54% to 3.70% y-o-y (see chart overleaf). Following on from a profitable H218, Q119 also saw an operating profit as benefits of the spending on IT and acquisitions came through, as we have assumed in our estimate for the full year. On 3 May, Share announced that it had had a preliminary approach from Interactive Investor (II) and early-stage discussions took place. However, on 9 May a further announcement indicated that II would not make an offer for its own reasons (we note that it is in the process of dealing with the Alliance Trust Savings acquisition), although discussions could be resumed with Share board approval.

Outlook

The uncertain UK political background remains a restraining factor for equity market activity and investor confidence, while globally US/China trade tensions are also a concern. However, Share’s update is reassuring in that it shows modest revenue progress despite the difficult background. H219 will see some benefit from tariff changes coming into effect in July (see overleaf). Our existing FY19 estimate assumes fee and commission revenue growth of 2%, while interest income is expected to see continued improvement giving overall revenue growth of 6%. At this stage, we are keeping our estimates unchanged and look for further benefits from its digital transformation investment and acquisition strategy to flow through over the longer term, generating operationally geared profit improvements.

Valuation maintained

Our primarily DCF-based valuation (see March note) is unchanged at this point with a central value of 32p. We would also highlight the early stage at which Share is in its return to profitability and the upside this and potential realisation of merger benefits in the event of the company being involved in consolidation might provide.

Market share and tariff changes

Exhibit 1 shows the progression of Share’s commission and fee revenue market share compared with a Compeer-collated peer group.1 As can be seen, this has increased over the period shown although there are quarterly fluctuations. During 2018, Share’s growth in fee income alone lagged the peers, possibly explained by adjustments to fee structure on the integration of Interactive Investor and TD Direct.

  Full list: AJ Bell; Alliance Trust Savings; Barclays Stockbrokers; Equiniti; Halifax Share Dealing; Hargreaves Lansdown; HSBC Stockbrokers; iDealing.com; Interactive Investor; ITI Capital; Jarvis Investment Management; Saga Personal Finance; Selftrade; Thomas Grant & Co; and Yorkshire Building Society.

Exhibit 1: Commission and fee revenue market share for Share

Source: Compeer, Share plc

Share has announced tariff changes, which take effect from 6 July. The main changes are shown below with the Share account fee increasing by 20p to £2.00 a month (+11%). Dealing charges are unchanged, with the standard dealing charge being £7.50 per deal for trades less than £750, 1% for £750 and above. For £24 per quarter (£8 per month), the frequent dealing option provides a flat fee of £7.50 per deal.

Exhibit 2: The Share Centre fixed account administration fee changes July 2019

£, monthly fees

Old

New

Share Account

1.80

2.00

ISA

4.80

5.00

Junior ISA

1.20

1.50

SIPP

14.40

15.00

Source: Share plc

Interactive Investor, which also offers flat administration fees, has also launched new pricing plans, which take effect from the beginning of June. It is moving from its quarterly account fee of £22.50 per quarter (equivalent to £7.50 per month that can be applied as a credit against trading fees). The new offering is three plans with monthly payments ranging from £9.99 to £19.99 per month. Dealing fees have been reduced to between £7.99 and £3.99 for UK trades depending on plan. Interactive Investor indicates that further plans will be offered subsequently. In broad terms, the effect will be that inactive investors will see some increase in costs while more active investors can benefit.

It is difficult to determine the competitive impact of the tariff changes as different fee profiles will suit different investors, and customer service and other factors will also be important. In this respect, Share’s IT investment should be helpful and its fee profile may prove particularly attractive to investors with a larger portfolio and a buy-and-hold approach.

Exhibit 3: Financial summary

£000s

2014

2015

2016

2017

2018

2019e

2020e

Year end 31 December

PROFIT & LOSS

Account fees

6,610

6,400

6,784

7,200

7,800

8,346

8,638

Dealing Commissions

6,610

6,400

7,040

10,600

10,900

10,737

11,059

Interest and other income

1,800

1,250

786

926

2,339

3,214

3,349

Revenue

 

15,042

14,050

14,610

18,726

21,039

22,297

23,046

Administrative expenses (exc amortisation and depreciation)

(14,579)

(14,812)

(15,727)

(19,169)

(20,536)

(20,620)

(21,180)

EBITDA

 

463

(762)

(1,117)

(443)

503

1,677

1,866

Depreciation

 

(104)

(111)

(121)

(127)

(120)

(140)

(140)

Amortisation

(11)

(21)

(108)

(223)

(698)

(1,170)

(1,200)

Operating profit (pre exceptional)

 

348

(894)

(1,346)

(793)

(315)

367

526

Exceptionals

0

0

0

900

0

0

0

Other

60

1,479

2,119

51

0

0

0

Investment revenues

308

276

248

225

293

265

265

Profit Before Tax (FRS 3)

 

716

861

1,021

383

(22)

632

791

Profit Before Tax (norm)

 

1,615

584

(46)

351

707

1,287

1,485

Tax

(109)

(196)

(284)

(73)

(47)

(120)

(150)

Profit After Tax (FRS 3)

 

607

665

737

310

(69)

512

641

Profit After Tax (norm)

 

1,416

555

4

383

626

1,043

1,203

Average Number of Shares Outstanding (m) - exc treasury

143.5

139.2

139.3

139.4

139.8

139.8

139.8

EPS - normalised (p)

 

0.99

0.40

0.00

0.27

0.45

0.75

0.86

EPS - FRS3 (p)

 

0.42

0.48

0.53

0.22

(0.05)

0.37

0.46

Dividend per share (p)

0.62

0.74

0.25

0.40

0.55

0.70

0.75

EBITDA Margin (%)

3.1%

(5.4%)

(7.6%)

(2.4%)

2.4%

7.5%

8.1%

Normalised operating margin (%)

8.3%

2.2%

(2.0%)

0.7%

2.0%

4.6%

5.3%

BALANCE SHEET

Fixed Assets (mainly Investments)

 

9,405

8,083

8,341

9,986

12,516

11,906

11,116

Current Assets

 

21,316

19,716

23,883

35,300

26,064

28,704

30,408

Total Assets

 

30,721

27,799

32,224

45,286

38,580

40,610

41,524

Current Liabilities

 

(8,450)

(7,681)

(13,384)

(25,942)

(17,671)

(19,398)

(20,050)

Long term Liabilities

(1,594)

(1,418)

(1,096)

(1,155)

(1,442)

(1,442)

(1,442)

Net Assets

 

20,677

18,700

17,744

18,189

19,467

19,770

20,032

CASH FLOW

Operating Cash Flow

 

199

(2,104)

492

1,147

415

1,584

2,093

Net cash from investing activities

(434)

1,990

483

(1,293)

(1,075)

(435)

(285)

Net cash from (used in) financing

(736)

(878)

(1,217)

(735)

(886)

(769)

(979)

Net Cash Flow

 

(971)

(992)

(242)

(881)

(1,546)

380

829

Opening net (debt)/cash

 

13,626

12,655

11,663

11,421

10,540

8,994

9,374

Closing net (debt)/cash

 

12,655

11,663

11,421

10,540

8,994

9,374

10,203

Source: Company accounts, Edison Investment Research


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London +44 (0)20 3077 5700

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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

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NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Share and prepared and issued by Edison, in consideration of a fee payable by Share. 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.

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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

Research: TMT

Boku — Growth on track

Boku’s capital markets day (CMD) highlighted the strength of the company’s platform, the growth drivers for the direct carrier billing business and outlined the progress of the newer identity services business. The recent trading update confirmed that the company is on track to meet our FY19 estimates, and recent contract announcements provide further support to the company’s growth outlook.

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