After a simply wonderful acquisition, a good AGM statement in the next fortnight should get shares in The SimplyBiz Group going, writes Mark Watson-Mitchell.
In just over two weeks I expect Ken Davy, the Chairman of The SimplyBiz Group (LON:SBIZ), to tell shareholders at his company’s AGM just how well the fast-expanding business is doing this year. Furthermore, I anticipate his bullish comments on its prospects over the next few years.
The group, which only floated on AIM at this time last year, was then valued at £130m. Today it is the single largest provider of outsourced compliance, regulatory and business support solutions to the financial services sector, currently supporting over 25% of advisers in the UK.
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The unrivalled service that it offers currently supports some 3,726 directly authorised financial advisory businesses, such as mortgage advisers, workplace consultants and directly authorised consumer credit brokers.
The Yorkshire-based group was established in 2002. It has expanded over the years through organic growth, innovation and acquisition. It now employs over 520 dedicated professionals from eight locations across the UK.
Together with the 2015 pension freedom reforms, the increasing need for professional advice on investing, mortgages, tax and estate planning, saw IFAs filling the void as the big banks pulled out of advising customers in the wake of mis-selling scandals such as PPI. And SimplyBiz has been there offering its increasing range of services.
It now has some 16 leading brands across a number of key sectors including insurance, investment, mortgages, consumer credit, workplace, fintech, regtech, estate planning and surveying.
Just two weeks ago the group announced the major £74.3m acquisition of Defaqto, a leading financial services technology business, which operates a fintech platform providing independent ratings on 21,000 financial products and funds for some 8,500 advisers. This ratings and technology business has the largest database of financial products in Europe.
That information is licensed by over 230 banks, insurers and fund managers providing a complete overview of those products and solutions, thereby helping consumer and adviser purchase decisions.
Defaqto is highly-cash generative and has almost 100% repeat revenues, thereby giving excellent earnings visibility. The acquisition is a strong strategic fit and should unlock a mass of additional growth opportunities.
For SimplyBiz this acquisition strongly advances its services into the general insurance and banking markets, whilst it also cross services Defaqto with support in the advisory and asset management sectors. By selling both companies’ products alongside each other, this acquisition should be adding to earnings within the next year.
The two companies had been working closely together for some time before the deal as SimplyBiz was developing its Centra platform, which is a ‘one-stop-shop’ for financial planners giving access to product research, comparisons, ratings and sustainability tools.
Centra took a year to develop its end-to-end online investment advice support platform and was launched a year ago. Since then it has been offering its fully integrated suite of tools covering the full range of adviser planning needs. This platform gives quality personal financial advice by way of a cutting-edge technology. To date over 2,300 advisers, out of the 3,726, have signed up and this number is expected to swell significantly.
This group’s Intermediary Services side, providing services to the demand-side IFAs, operates on a membership basis with subscriptions paid monthly. Whilst the supply-side, Distribution Channels division, for the institutions, operates with the product providers entering into annual contracts for the services provided.
The recently announced results for 2018 reported revenue of £50.7m and profits of £9.98m, which was before £3.6m of last year’s IPO costs. Chairman Ken Davy declared that it was a transformational year with a continued momentum in the group’s organic and inorganic growth strategy.
And this year should see sales growing rapidly due to a combination of an expanding product range and much higher customer numbers. This year, broker’s ‘pre-Defaqto’ estimates suggested £55m of revenue and £12.2m pre-tax, worth 12.2p per share in earnings, with a 4p dividend per share. Next year as much as £60m was thought possible, worth 14p in earnings, giving a dividend of 4.6p per share.
Could Ken Davy, who owns over 31% of the enlarged group’s equity, give shareholders, following the benefits of the Defaqto purchase, enough bullishness to see brokers increase their current and prospective year estimates?
Floated at 170p last year, the shares have only recently started to move upwards and now, at 208.5p, are just 2p short of their high. That will be beaten shortly and sentiment, towards the now £202m valued company, should easily carry them up to break the 250p level, with 300p being a one-year target price.