Talk your book - My value quest: December 2015

Wednesday 30 December 2015

MANX FINANCIAL #MFX

MANX FINANCIAL

#MFX

Buys -
Average -
Currently -
Target –
Timeframe –March 16

Current Mcap -

Before reading any of my drivel, it is absolutely imperative that you read the great El1te Trader's summary of #MFX. He rated it as a buy at 13.5p in Oct last year. He obviously sums up the past and issues far far better than i can. My piece below should be seen as a bolt on update to his fantastic piece. Operationally, things have gone fantastically from then but the SP is down, providing a mouthwatering trading/investing opportunity. Before reading my updated analysis, it's worth a quick read of the link below to set the scene.

http://www.theel1tetrader.com/2014/07/manx-financial-group-exploiting-change.html

So the state of play around 14 months ago was a 2013 Pre-Tax profit of £1.1mill and an MCap of around £13.5mill, SP 13.5p. Not too bad at all.

Lets fast forward to the 2015 interims...

Profit before tax:	£1.01 million - up 33% (2014: £0.76 million)

Net interest income:	£6.87 million - up 36% (2014: £5.05 million)

Operating income:	£4.53 million - up 19% (2014: £3.8 million)

Total assets:	£126.17 million - up 24% (2014: £101.68 million)

Loans:	£92.53 million - up 11% (2014: £83.07 million)

Customer accounts:	£105.67 million - up 25% (2014: £84.51 million)

Total equity:	£10.89 million - up 18% (2014: £9.25 million

I would be absolutely amazed if the EOY 2105 results (due out 27/02/16) dont show a pre tax profit of at least £2.2million. The current Mcap sits at £11.23million (date of writing 15/11/15). So the profits will have doubled since July 2014 and yet the share price is off by 15% or so. The "Outlook" section in the interims reads "
The Group has delivered excellent profitability for the first half of 2015 and I have every confidence that the full year will see this momentum maintained. Our new business opportunities remain strong and we will continue to manage our operational costs as prudently as possible"

£1mill/half profit as a base case going forward

Since H1 2015 has already produced a £1m pre-tax profit, it's fair to assume that - stripping out any exceptional costs if they are looking at acquisition opportunities - pre-tax profits should continue at a run-rate of £1m per half year at a minimum. The key point with Manx Financial is that there are a lot of warrants and options in issue, that create a big difference between the earnings per share figures, and the diluted earnings per share figures. More precisely, in the interim results, headline EPS was 0.87 pence compared to a much lower 0.54 pence in diluted EPS.

However, even assuming no improvement in H2 2015, which is arguably unreasonable as they have a strong track record of half-yearly improvements, would put MFX on a 2015 PER of 6.5 on the ask price of 11.25p or 10.4 on a diluted basis. Considering the rapid rate of profit growth and the fact that yearly profit in 2013 was just £1.1m on a pre-tax basis, this puts MFX as the major valuation anomaly within the sector. Yes, the market may still be sour over the loan deals issued to Jim Mellon and other key management in a bailout deal after the financial crisis, but in my opinion the growth and valuation will eventually shine through this and the market will be willing to assign a higher valuation multiple - perhaps closer to 14-15 - which would translate through to a share price around 40% higher than the current ask price.

Industry comparison PEs

Average "Financial Services" PE is 17.5, so MFX are clearly below this but lets look at a few direct comparisons.

Company	Mcap	Pre-tax profit (last full year)	2015 PE
Manx Financial	£11.23mill	£1.73mill (YE Dec 14)	6.5 (headline)/10.4 diluted
1PM	£36mill	£1.62mill (YE May 15)	18.4
Private and Commercial	£31.6mill	£2.1mill (YE March 15)	15.7
Secure Trust Bank	£521mill	£26.1mill (YE Dec 14)	17.5
S&U	£282mill	£23.2mill (YE Jan 15)	15.4

As discussed before, the MFX PE is going to get smaller with a pre-tax profit of over £2.2mill for the cuurrent year being reported end of Feb 2016.
1PM is pretty much a direct comparison. The fact Manx Financial is so undervalued compared to it is hard to fathom. At one point 1PM was on a PE of over 40.

Other Valuation Metrics

	MANX FINANCIAL	FINANCIAL SERVICES SECTOR
EV to EBITDA	2.3	13.7
PRICE TO BOOK	1.2	2.5
PRICE TO CASH FLOW	1	19.3
PRICE TO SALES	0.8	4.1
NET DEBT TO EQUITY	0.7	1
RETURN ON EQUITY	17.2	15.1

It looks pretty tasty on the other metrics too.

Whats the bear case or downside?

Well for the life of me i cant make a convincing case for signficant downside from the current SP. Probably a large degree of confirmation bias. At some point MFX will re-rate. I think that will be in the run up to and post the EOY results 2016. The main bear case is around the warrants and director loans or if the lending sector starts to decline, but the outlook for major banks over the next few years is surprisingly bright and this could have a positive filter effect on the rest of the financial services sector. As it stands, the UK economy's performance is resilient and favourable for small challenger banks with Aldermore and OneSavings Bank great examples of the share price and profit momentum within the industry. Please leave a comment if you spot massive flaws\holes in the story.

Decision

I think these are a superb buy below 11p with £2.2mill profit around the corner.

Disclaimer

Clearly dont just buy based on my recommendation or anyone elses. Do your own reseach. Pick an entry you are happy with, pick a target exit you think is achiveable. This share may go up and down quite a bit before the target catalyst. The target catalyst may not be as good as hope resulting in an AIM sell off with decent losses if your entry is wrong

Friday 11 December 2015

UPDATED IMPACT NUMBERS #IHUK

More detailed financial review

	REVENUE (£000S)
HALF 2 2015	1,082
HALF 1 2015	906
HALF 2 2014	783
HALF 1 2014	958
HALF 2 2013	885
HALF1 2013	425

	COST OF SALES (£000s)
HALF 2 2015	91
HALF 1 2015	376
HALF 2 2014	786
HALF 1 2014	521
HALF 2 2013	318
HALF 1 2013	113

	OPERATING EXPENSES (£000S)
HALF 2 2015	503
HALF 1 2015	765
HALF 2 2014	1079
HALF 1 2014	435
HALF 2 2013	320
HALF 1 2013	309

	PROFIT (£000s)
HALF 2 2015	488
HALF 1 2015	-226
HALF 2 2014	-1082
HALF 1 2014	2
HALF 2 2013	247
HALF 1 2013	3

IHUK has gone through a difficult period involving litigation that has had a drain on profits and resources but they appear to have turned the corner with the closing of the large AIG litigation and winning of over £1mill.

This can be demonstrated in terms of average number of staff employed in EOY 2014 vs 2015…

2014 – 85 average monthly employees

2015 – 35 average monthly employees

Going forward I would assume the operating expenses of £500k to be nearer the mark with reduced staff numbers.

I am unsure what constitutes “cost of sales” and the company are in a closed period pre interims, confirmed for this month. However, it is good to see a continued downtrend to the lowest ever level in the last half year.

Revenues continue to grow after the large litigation is out of the way too.

Complete guess, finger in the air interim prediction…

Revenues £1,100k

Cost of Sales £200k

Operating Expenses £600k

Profit £300k (I am hoping this is conservative)

On this basis with a yearly profit of £600k+ they should be on a PE of say 12 and an MCap £7.2mill and an SP of around 275p

ROLL THE DICE

Tuesday 8 December 2015

IMPACT HOLDINGS #IHUK

IMPACT HOLDINGS PLC

#IHUK

Buys - 3250 @ 87.4999p and 2536 @ 91p

What does it do?

The core strategy of Impact Holdings (UK) plc is that through its individual subsidiaries the Group provides short term funding solutions, loans administration, accounting, IT and infrastructure support services in two specific categories:

1. The legal market;
2. Property based bridging and development market.

Impact will also look at other bespoke funding opportunities where serviceability precludes
mainstream lenders from entering the space

Group Organisation

Impact Costs Limited

Impact Costs aims to deliver a one stop solution for all Costs needs. It offers costing in all categories of work, whether it be claimant or defendant, public or private paying. Its aim is to be market leaders and we feel that with our combination of well trained and highly efficient personnel supported by effective IT systems, we can offer an unparalleled quality of service to all of our clients.

Impact Funding Solutions Ltd

Impact Funding Solutions is a specialist provider of short term funding solutions to the Solicitor market on an entirely business to business basis secured on a case specific loan secured on individual Consumer Credit Agreements (CCAs). IFSL is registered under a Full Consumer Credit Licence (No 597638) and Data Protection Licence (No Z9753173). Our aim is to be the loan provider of choice for the solicitor market based on core relationships and professional knowledge of their requirements.

Impact differentiates itself to its target market through Speed, Service, Innovation, Transparency and Flexibility. This delivery affords the pricing model. All Loans will attach to a case specific event, with a clear range of exit possibilities.

The blend of relationships and skills within Impact is unique and will engender a high level of interest in the service offered and quality introductions.

Impact Bridging Solutions Ltd

Impact Bridging Solutions is a provider of short term bridging loans secured against property.

You will not find Impact in the yellow pages – it works purely via business referral through a selected network of professional introducers such as Finance brokers, banks, solicitors, accountants, insolvency practitioners, property agents and other finance providers.

Impact is dedicated to the timely provision of property backed bridging finance. Whatever the challenge Impact has the necessary in-house skills and commerciality to ensure a highly professional approach and rapid delivery of funds.

Sutherland Professional Funding Ltd

Sutherlands was acquired by Impact on 30th December 2009 having commenced trading in November 1997 with a strategy to provide loans to the accountancy, insurance and legal professions.
Based at Impact’s Head Office in Manchester, Sutherland operates throughout the UK and establishes and maintains strong relationships with the practices to, and through, which it provides finance.
Sutherland offers finance both to law firms and individual clients of legal practices in relation to:-

Personal injury fees and outlays funding; and
General fees and outlays funding.

Shareholders

Mercantile Investment Company Limited - 28.29%
John G Russell (Transport) Limited - 23.2%
JG Russell - 11.55%
G.J. Litster - 8.01%
R Kilsby - 5.92%
P.J.Davies - 3.79%
Impact Benefit Trustee Ltd - 3.15%

So FF or non-notifiable percentage = 16.09%

Financials

Income Statement	31 Mar '15	31 Mar '14	31 Mar '13	31 Mar '12	31 Mar '11
	£ Millions	£ Millions	£ Millions	£ Millions	£ Millions
Revenue	1.99	1.74	1.04	1.19	1.55
Operating Profit / Loss	0.25	(2.98)	0.05	0.31	0.30
Net Interest	n/a	3.08	n/a	n/a	n/a
Pre tax Profit	0.25	0.10	0.05	0.31	0.30
Post tax Profit	0.26	0.10	0.04	0.31	0.30
Profit for the Period	0.26	0.10	0.04	0.31	0.30
Equity Holders of Parent Company	0.26	0.10	0.04	0.31	0.30
Minority Interests	n/a	n/a	n/a	n/a	n/a

Current Mcap - £2.5mill
Cash - £1.6mill
EV - £0.9mill
Net Assets = £5.84mill

Now the raw figure of £250k pre tax profit for last year doesnt tell the entire story. The second half actually contributed around £490k as the first half had considerable legal expenses to try and regain loans. This was money well spent as they have been awared £1mill from AIG http://www.lse.co.uk/share-regulatory-news.asp?shareprice=IHUK&ArticleCode=929opbfx&ArticleHeadline=Update_on_Litigation

Valuations (stockopedia)

Discounted cash flow implied valuation = 115.1p
Relative to sector = 300.01p
Net current asset value = 166p
Net net working capital = 123.64p
Tangible book value = 206.63p

Price to Book Value	0.40 (industy median 1.16)
Price to Tang. Book	0.43 (Industry median 1.29)
Price to Free Cashflow	1.80 (industry median 1.85)
Price to Sales	1.15 (industry median 2.32)
EV to EBITDA	2.38 (industry median 56.6)

Piotroski F-Score 9/9

Buying rationale

With an mcap over half cash this is an unusual AIM nanocap business. It has Net assets over double mcap as well. Some of the net assets are in the form of debts owed that they are successfully collecting via the courts, having been awared £1mill from AIG earlier in the year. They think they will be free of these legal proceedings within a year. They have an increasing revenue and profit and they underlying profit growth, half on half is very impressive. As it is the business is very undervalued, if/when the interims in dec show any further increases in rev/profit then it will be even more undervalued. Having discussed this quite a bit with smallcap guru SmudgeDan, we decided to buy this morning

INTERQUEST #ITQ

INTERQUEST
#ITQ

What does it do?

Bacially ITQ is a recruitment agency specialising in the digital field. That might be doing them a bit of a disservice as they arent just the run of the mill agency.
http://www.interquestgroup.com/
They try to concertrate more on more highly skilled post and match blue chip companies with the type of IT expert it would be difficult if not impossible to find elsewhere

From their website...
We focus on jobs within information security, analytics, digital, telecom and technology. Operating in high growth areas of the new digital economy, we recruit across all industry sectors with a particular focus on financial markets, retail, not for profit, public sector and professional services.

Historic Price Action

Back in sept/oct '14 ITQ put themselves up for sale and the price rose to 120p+. This was subsequently aborted with the management citing poor advice from NOMAD. The SP fell away despite continuing strong financial proformances with the occasional spike. See video below for management explaination.

ITQ in the Media

http://www.thisismoney.co.uk/money/investing/article-3232001/MIDAS-SHARE-TIPS-Ignore-bad-news-InterQuest-Group-jobs-agent-thriving.html
Midas say buy

Directorate Changes

Seemingly after the botched sale, both the CEO and CFO decided to move on. They both sold a decent whack of shares in the open market. The chairman stepped back up to be more executive and able replacements have now been found. It is worth noting that during this turmoil the company has continued to perform superbly with increasing profits, revenues and EPS.

" InterQuest Group plc (AIM: ITQ.L), the specialist recruiter in technology, analytics and digital markets, is pleased to announce that following a comprehensive search, it has reached agreement with Chris Eldridge to become CEO of InterQuest. For the past 10 years, Chris has been the Global Head of PSD's Technology Practice specialising in recruitment in specialist digital, business information, Internet of Things, M2M, big data and analytics roles. Chris has over 20 years' experience in the recruitment sector having run both permanent and contract focused businesses as well as conducting business in continental Europe, the USA and China. Chris is expected to assume his position on 2 May 2016 after an orderly handover period at his current employer."

"InterQuest Group plc (AIM: ITQ.L), the specialist recruiter in technology, analytics and digital markets, is pleased to announce that further to the appointment of Chris Eldridge as CEO announced on 5 November 2015 it has also reached agreement with David Bygrave to become CFO of InterQuest. David has extensive experience of CFO roles within the technology sector having most recently been the CFO of Caplin Group from 2010 until the sale of the company earlier this year. David will assume his position on 1 December 2015."

Technicals

On the 1 year chart is there a triple bottom at around 80? Its in a falling wedge with lower highs and as El1te pointed out to me, the market is less and less willing to buy this. He thinks this is bearish and hes smarter than me. If 80 breaks where will it go to?

Financials

Year End 31st Dec		2009	2010	2011	2012	2013	2014	TTM	2015E	2016E	CAGR / Avg
Revenue	£m	97.4	112.2	120.9	112.7	114.9	150.6	158.8	158	166	+9.1%
Operating Profit	£m	1.91	2.41	0.066	-0.14	1.68	3.31	3.70			+11.6%
Net Profit	£m	1.35	1.90	-1.07	-0.15	0.98	2.00	2.54	4.00	4.00	+8.2%
EPS Reported	p	4.19	5.86	-3.39	-0.43	2.79	5.48	6.96			+5.5%
EPS Normalised	p	4.19	5.86	2.56	4.00	4.17	6.81	7.42	10.9	12.0	+10.2%
EPS Growth	%	-50.5	+39.7	-56.3	+56.3	+4.3	+63.4	+101.8	+60.0	+10.1
PE Ratio	x						12.1	11.1	7.57	6.88
PEG	x						0.21	0.19	0.75	1.03
Profitability

So from the 2014 results, the increase in net profit is expected to be 57% to £4mill
The normalised EPS is expected to increase to 10.9p, a 60% increase.

Interims 2015
So are they on course for that 4mill profit and 10.9p EPS??
Adjusted EBITA* on a constant currency basis up 17% to £2.8m (2014: £2.4m)

§ Adjusted EBITA* up 13% to £2.7m (2014: £2.4m)

§ Adjusted PBT* up 14% to £2.5m (2014: £2.2m)

§ Profit for the period increased by 33% to £1.6m (2014: £1.2m)

§ Net Fee Income ("NFI") up 6% to £12.1m (2014: £11.4m)

§ Improved EBITA / NFI ratio of 22.2% up 110-bps from 21.1% in 2014

§ Revenue up 11% to £81.2m (2014: £73.0m)

§ Diluted adjusted earnings per share up 20% to 5.5 pence (2014: 4.6 pence)

§ Basic earnings per share up 47% to 4.7 pence (2014: 3.2 pence)

§ Basic adjusted earnings per share up 16% to 5.7 pence (2014: 4.9 pence)

§ Net cash generated from operating activities £2.8m (2014: £3.4m)

One year rolling PE is 6.84 vs sector median of 13.6

Using stockopedia implied valuations...
Discounted cash flow = 123.87p
Graham formula = 201.32p
Relative to sector = 116.88p

Verdict

I had thought this would be a good buy at 80p but Mr El1teTrader convinced me to watch a little longer. If 80p breaks where will it go to? I still think at 80p its undervalued but id like to buy when its at its most undervalued!!

Disclaimer
Clearly dont just buy based on my recommendation or anyone elses. Do your own reseach. Pick an entry you are happy with, pick a target exit you think is achiveable. This share may go up and down quite a bit before the target catalyst. The target catalyst may not be as good as hope resulting in an AIM sell off with decent losses if your entry is wrong