Anexo Group Plc Share Price (ANX)

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"As noted when I suggested buying the shares, at 65p, in my 2024 Bargain Share Portfolio, the reason for holding them is the potential for a narrowing of the 53 per cent share price discount to book value of £159.7mn (135p) as more investors cotton onto the debt reduction programme and the changing mix in the group’s income stream. A current-year prospective price/earnings (PE) ratio of 4.2 and an enterprise valuation to operating profit multiple of 3.5 times highlight the value on offer, too. Buy."

Continued...

""Significant pipeline of demand

Credit Hire division provides an essential service to “impecunious” individuals who would be otherwise unable to fund repairs or a replacement vehicle. According to recent research published by the House of Commons Library, 11 million adults do not have a credit card (without which It is impossible to hire a car) and 16 million adults do not have the reserves to meet an unexpected bill of £300. In addition, the Money and Pensions Service has found 8 million adults are in need of

professional advice on their debts and 12 million people are “on the edge” of serious debt problems. These statistics illustrate the level of need for the services Anexo provides in our view.

We believe an increase in ‘gig-economy’ drivers, where access to a vehicle is essential, combined with the impact of the consumer crisis on individuals’ accessible funds will drive demand for Credit Hire in the near term. There are currently 7.2m gig workers of which 3.7m, or >50% are drivers, forecast to grow at 7% per annum. Rigorous screening means Anexo has a >98% success rate at trial, with most cases settled outside court.

High growth Housing Disrepair division: The Group’s Housing Disrepair division was established in FY20 following the passing of The Homes (Fitness for Human Habitation) Act 2019. An estimated 12% of social housing (480,000 homes) and 25% of private rented housing (1,150,000 homes) fail to meet the Decent Homes Standard, whilst an estimated 5% of social housing (200,000 homes) and 14% of private rented housing (644,000 homes) have hazardous levels of damp and mould growth. The HDR claims cycle is shorter (typically 7-9 months), more profitable and generates a higher return on capital vs. Credit Hire. Assuming c.25% of those eligible go on to

pursue a claim implies a total of 600,000 claims. Anexo has c.3,900 active claims at the 31 December 2023, indicating significant growth potential in this division.

Emissions litigation has potential to generate meaningful cash returns: the Group believes there is potential for further cash generative agreements through pursing additional, selective emissions litigation claims, with up to 11 million vehicles impacted in the UK. This includes the ongoing Mercedes Benz Emissions Claim, with a total of 12,000 claimants now signed up and forming part of the wider group litigation action. Mercedes Benz agreed to pay 250,000 American consumers an average of $3,290 each after a similar group claim in the United States. The UK

Mercedes Benz claim has been valued at up to £1bn by some experts. Further actions against Vauxhall, BMW/Mini, Peugeot/Citroen and Renault/Nissan is also underway with c22,000 confirmed claims."

Zeus have issued an update note today.

They forecast 14.8p EPS this year, rising to 16.4p EPS next year.

There's a 1.7p forecast dividend for both years, with net debt falling to £54.6m at the end of next year.

Here's the outlook summary, but it's the section on the significant pipeline of demand which is the most interesting:

"Outlook & forecasts: Our FY24E forecasts are unchanged, and we introduce FY25 numbers today. Our forecasts are underpinned by growth in vehicle activity, particularly towards the end of FY23, as well as the significant portfolio of claims within Legal Services.

 Valuation:

Anexo trades on an FY24E P/E of 4.3x with a prospective dividend yield of 2.7% based on a conservative c.10% payout ratio of adj. EPS. We do not include any benefit from future Emissions Case agreements, despite reflecting the associated marketing costs within our forecasts, providing upside risk to profit and cash generation in the event that agreements are reached, which we expect could be in FY25/FY26."

Looks like a positive turnaround is happening here, led by much improved cash flows. An excellent summary elsewhere by Moathunter as follows:

"...a solid set of results.

Thankfully they are slowing top line growth and concentrating on cash collection to improve working capital.

And with such a fixed asset-lite/ capital light business model with a strong moat unique business configuration (legal aid + car hire), the result is significant free cash flow generation which is calculated as £28m this year (NOPAT + Deprec.- Capex -change in working capital).

Removing the one-off Emissions Case that resulted in a net positive cash position of £7m = £21m free cash flow **and this is a predictable cash flow going forward (stable industry, moat, proven model through downturns).**

So with a market cap £79m/£21m = 3.8x free cash flow multiple.

Or Enterprise Value £147m/£21m = 7x multiple.

£21m/ 10% discount rate (back of envelope) = 21/0.1 = £210m - £68m net debt = £142m valuation for the equity/118m shares = a conservative 120 pence and that excludes growth.

Cheap."

WH Ireland forecast 15.2p EPS this year, up from 12.8p EPS, for a P/E of just 4.2, with a EV/EBITDA of only around 3.4.

They conclude:

" Continuing in invest in attractive markets

The business looks all set to grow, having invested strongly in FY23 (£4.3m in Diesel Emissions lead generation / staffing, £3.8m in Housing Disrepair marketing costs, and vehicles at peak levels in Credit Hire as discussed). The large demand pool of impecunious motorists and motor-cyclists involved in no-fault accidents continues to be tapped. Housing issues on both sides of the private / rented divide remain a major issue. We view secured claims of 12,000 (Mercedes Benz) and 22,000 (others) as offering a very substantial future reward to this company.

• Forecasts:

Following inline results this morning, we leave our FY2024E unchanged, assuming a continuation of high levels of activity in the credit hire business and a positive impact from growth in headcount in the Legal Services division. Introducing FY2025E forecasts, we see potential for ANX to deliver further growth whilst at the same time achieving a reduction in net debt as cash collections improve. Crucially, we note our forecasts include vehicle emissions marketing costs as expensed, excluding the significant upside this promises."