RBG Holdings – Reviewing Targets Ahead of Interims

In just under a month’s time, Tuesday 13 September, we should be getting the announcement of the interim results from this diversified professional services group.

Since Nicola Foulston joined the Rosenblatt Group she has put together a very effective team that is sensibly expanding the £86m group that is called RBG Holdings (LON:RBGP).

At Interims time the company will show just how well it is doing this year and help to identify its prospects as it runs into the next year.

The group has four main operations – Rosenblatt and Memery Crystal, both of which are in legal services, LionFish Litigation Finance and finally Convex Capital, which is a corporate finance business.

A month ago, the group announced a Pre-Close Trading Update for the six months to end June. The statement was very positive with it stating that it continues to trade in line with current market expectations.

Group CEO Nicola Foulston declared that:

“Having delivered the upgraded market expectations for the 2021 financial year, we are pleased with the continued solid trading performance of the Group. Macro-economic conditions are volatile, and we are conscious of the ever-changing economic environment.

However, our diversified strategy helps provide resilience and protection through a broad revenue base that is not dependent on any one sector.

The integration of Memery Crystal and Rosenblatt has been a success with improved operating efficiency driving higher margins.

Our Litigation Finance business continues to develop and offers the potential for substantial returns for shareholders.

Finally, our M&A business, Convex Capital, continues to perform well and is converting its pipeline. We are confident about the long-term prospects of the Group.”

Broker’s View

Analyst James Tetley at Singer Capital Markets, the group’s NOMAD and broker, rates the company’s shares as a Buy with a price objective of 160p.

His estimates for the current year to end December are for revenues to increase from £47.2m to £56.2m, with adjusted pre-tax profits rising from £10.7m to £13.1m, generating earnings of 10.9p (8.9p) and covering a 6.56p (5.00p) dividend per share.

Going into next year Tetley has figures out for £62.0m revenues, £15.8m profits, 12.3p earnings and 7.41p of dividends per share.

Tetley considers that the group trades at a discount of some 50% to its peers, and that is despite it growing twice as fast.

He notes that RBG is by some distance the highest margin listed legal services business, particularly reflecting its specialism in contentious law and its high revenue per fee earner.

My View – a new Target Price of 120p

I have a lot of time for Nicola Foulston and her entrepreneurial ambition to grow the group at a measured pace.

The Memery Crystal acquisition has added a lot of scale to the group’s legal services side.

More acquisitions can be anticipated in the next year or so.

However, before she does more deals, I believe that an effort now has to be renewed upon the group getting its message out to the market generally.

The shares had more than doubled in the four months after my Profile on the company in early February last year, hitting 160p at the end of June.

They are now back to 88.5p, which puts them out on a mere 8.1 times price-to-earnings ratio for the current year.

That is far too low a rating and I see the shares picking up with more investor awareness, with 120p being a good near-term target.

I will now make that my new Target Price.

(Profile 05.02.21 @ 80p set a Target Price of 100p*)

(Asterisks* denote that Target Prices have been achieved since Profile publication)