K3 Capital Group – this stock feels very right ahead of its figures

On Monday 1 November we will see the UK’s leading small cap mergers and acquisition group announce its results for the year to end May.

They should be excellent, returning more than tripled revenues at £46m (£15m) and better than doubled adjusted pre-tax profits of £13.9m (£6.4m).

Broker’s estimates suggest that earnings will be 16.4p per share against 12.2p previously, while giving a very decent cover for a 9.1p dividend per share, up from 7.5p.

About the company

The Bolton-based K3 Capital Group (LON:K3C), which was established in 1998 and was listed on AIM in April 2017, describes itself as a multi-disciplinary professional services business which provides advisory services to small to medium sized enterprises, both in the UK and internationally.

The services offered by the group fit into three main key operating divisions: Mergers & Acquisitions; Tax; and Recovery.

Today it employs over 450 people and operates from 18 offices in the UK and from 3 other offices overseas.

Corporate expansion in the Covid-19 years

It has enjoyed some significant corporate expansion over the last year or so.

In 2020, following a £30.45m fundraising in June, it acquired Quantuma Advisory and randd uk Ltd, as well as getting into a joint venture with Market Mapping Ltd.

In February 2021, the group launched K3 Hub, an exclusive member-only referral network for professionals to provide K3 Capital Group’s specialist services to their own clients and complement their existing work.

In July it raised a further £10m through a funding round and then completed the acquisitions of Knight Corporate Finance Group Ltd and Knight R&D Ltd.

Now the group’s trading subsidiaries consist of KBS Corporate, KBS Corporate Finance, Knightsbridge, Knight Corporate Finance, Quantuma, randd, inTax, Knight R&D, K3 Debt Advisory, K3 Tax Advisory and Market Mapping.

The equity

The group has some 72.73m shares in issue.

The CEO John Rigby holds 10.4%, while the Executive Vice Chairman Anthony Ford holds 7.56% of the equity.

The larger investment professionals in the shareholders list include Miton Asset Management (13.9%), AXA Investment Managers UK (4.68%), Jupiter Asset Management (4.67%), Schroder Investment Management (4.65%), Henderson Global Investors (4.26%), Diverse Income Trust (4.00%), Canaccord Genuity Wealth (3.05%), and Grandeur Peak Global Advisors (2.66%).

The finals due within days

Announcing the anticipated date for publishing its end May 2021 results, the group stated that

“The group has seen the positive momentum built throughout FY21 continue into the current financial year, with strong KPI performance and trading in line with market consensus. The Board expects the group to deliver further organic growth this year, while continuing to progress its acquisition and integration strategy.”

We can expect to see a lot more growth from this group, both organically and by acquisition over the next few years.

Its declared medium-term strategy is to build a wider group of growing and complementary professional services businesses to provide SMEs with high quality advice across specialist disciplines.

Broker’s View

Broker’s estimates for the current year to end May 2022 see revenues rising from the suggested £46m in 2021 to £57.5m, with pre-tax profits of £18m against the estimated £13.9m for the last year.

That should see earnings increasing to some 19.75p per share and covering a useful 12.1p dividend per share.

The benefits of the 2021 expansion and subsequent bedding-down in 2022 is expected to push the 2023 revenue up to £68m, to generate a profit of £21.8m, with earnings of 24.2p and a 15.5p dividend per share.

My View

I would like to think that the group will be making a very positive current year statement with both its finals and then its AGM. That could well give further momentum to the improving share price.

I have been delighted with the price performance inside the last year – much more than doubling since my profile, but I sense that there is still a lot more to come.

An average of the broker’s price objectives for the group’s shares is 465p, they are currently trading at 342.5p.

In my humble view that makes the shares an absolutely cracking purchase, looking for an easy 430p within the next year.

(Profile 21.10.20 @ 147.5p set a Target Price of 200p*)