Anexo Group – undervalued growth potential

Mark Watson-Mitchell uncovers another small-cap gem in Anexo Group, the credit hire and legal services firm which acts for Non-Fault Motorists. 

Based in Liverpool the Anexo Group (LON:ANX) describes itself as an integrated credit hire and legal services group which acts for the Non-Fault Motorist, particularly ‘impecunious’ claimants, by providing replacement vehicles at commercial credit hire rates.

It has developed into a very interesting business since it was established as a standalone credit hire business by barrister Alan Sellers in 1996.

Today it has two main divisions – credit hire trading as Edge, and legal services trading as Bond Turner.

Edge is the complete solution for the Non-Fault Motorist, referring to those who do not have the financial means or access to a replacement vehicle. It provides cars, light commercial vehicles and motorcycles while body shops are handling the repairing of claimants’ vehicles.

Bond Turner is a legal practice that acts on all the claims generated by Edge. It handles recovery of hire charges from the At Fault insurer, it gathers specialist reports and also takes in personal injury claiming.

It really is a quite strong business model. Where litigation is commenced it suffers a less than 2% failure rate, with 98.5% of cases being settled before court appearance.

Bond Turner has also been expanding its advocacy and specialist litigation team taking it into other areas of compensation claims.

The group floated on AIM in June 2018, when it placed 25m new shares at 100p each, valuing it at £110m.

Now with 110m shares in issue, of which Alan Sellers holds 33.1%, while the boss of Bond Turner, Samantha Moss, owns another 34%. Tina Slater, who is a member of the senior management, holds 6.69%.

Institutional holders include AXA (4.81%), L&G (3.63%), Gresham House (3.03%), Henderson Global (2.55%), Cavendish Asset (2.50%) and JP Morgan Asset (1.25%).

That is really a quite tight equity for such a small company – which means that the share price can react quite dramatically to good or bad news.

Covid-19 has been bad news for the market as a whole, helping to drive the group’s shares down from trading at around the 185p level.

They subsequently fell steeply to a 100p low before picking up firstly upon the early April trading update to 120p and then a few days later getting a further boost on the news of its participation in the VW class action on behalf of 8,000 of its clients, lifting the shares up further to 137.5p.

The trading update stated that its 2019 December year-end results have been delayed following FCA and FRC guidance. However, when they do get released (shortly I hope) they should show that revenues were up 38% at around £78m while its pre-tax profits were nearly 43% better at £23m.

That could show earnings coming in at 17p per share, while its dividend is deferred (but was expected to be around 2.3p per share).

Just how much the bug will hit its business in 2020 is very much up in the air; however, if we skip a year forward, previous estimates suggested that £93m turnover and £28m pre-tax profits were possible, which would give about 21p in earnings per share.

I cannot believe that the current year will be impacted too much, especially as it is considered as an ‘essential business’, with its operations continuing as before.

It has a strong balance sheet, conservative gearing and good liquidity, together with good banking facilities.

At today’s 134p that would make the shares very attractively priced for investors taking a one-year view.

I now set an end 2020 target price of 175p.