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For such market-leading strength and great upside potential, shares in this business services group offer extremely attractive prospects, writes Mark Watson-Mitchell.
In late January this group, which is a leading provider of compliance, technology and business services to financial advisers and financial institutions, announced its trading update for the year to end-December 2019. And what a year that was.
SimplyBiz (LON:SBIZ) made the sizeable but sensibly strategic £74m acquisition of the leading DeFaqto research and FinTech provider business a year ago. Now, that it has been bedded down inside the group, we are going to see some real growth.
The pre-close statement suggested that it had shown 24% revenue expansion and an impressive 50% adjusted EBITDA improvement, together with a very strong 4% advance of its margin at 27%.
Next Tuesday the company will be publishing its full-year results for 2019. I hope that the accompanying report on trading and its potential for this year and into the future will be encouraging – we need positive news in these markets.
Set up in 2002, the company has subsequently increased in size and services each year. This group has grown impressively over the last few years, by pure organic growth and by making useful acquisitions.
Today it supports over 10,000 financial advisers across the UK, providing regulatory and business support, FinTech solutions and comprehensive training and development. It is a leader in nearly all the service sectors in which it operates.
Its clients include several handfuls of the finance sector’s leading life and pension providers, insurers, banks and lenders.
The £187m capitalised SimplyBiz Group, with its 14 leading brands, is now the largest provider of outsourced regulatory and business support services to the financial services market. Its intermediary services division supports over 3,700 directly authorised financial advisory businesses in the UK. It operates on a membership basis with subscriptions paid monthly, while also offering additional bespoke compliance and technical services.
The group’s distribution channels side provides promotion and marketing, product panelling and co-manufacturing services to over 135 institutions, asset managers, life assurance and pension companies, mortgage lenders, general insurance providers and credit lenders. Its product providers are contracted to the group on an annual basis.
The company has its head office in Huddersfield, from which it manages its eight offices and over 520 professional employees.
Estimates for the 2019 results suggest that revenue will come through at £64m, with pre-tax profits of £14m, worth 12.5p in earnings per share. Remembering that it has a high visibility of its earnings, this year could see £72m revenues and £18m profits, giving 15p of earnings. Going forward, next year has a pencilled-in revenue of £78m and £21m profits, with 17p of earnings.
The group’s shares have fallen back, like almost everything else in the market over the last two weeks. Now some 55p lower over the fortnight, the shares trade at 185p which puts them out on an attractive 14.8 times historic, 12.3 times current year and 10.8 times prospective earnings.
For such market-leading strength and great upside potential, the shares offer extremely attractive prospects. I stick firmly to them returning above my target price.
Profile 04.04.19 @ 208.5p set an end-2020 Target Price of 250p.