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The dividend is surely gonna be cut given declining earnings and regulatory problems.
with company re dividend prospects/intentions but they didn't have the courtesy to reply
I forgot to mention, that at the current price STM offers a dividend of approx 10%.
Market cap of £14m
cash of £18m
Profit making for 2019 £3.6m estimate
Approx 20% margins
PE under 6
broker target 119%
Relative to sector 220%
NAV 59p
So, the last trading update was not great and saw the sp drop.
But this is still a profit making company and way under valued imo.
The company on it's current sp has a negative Enterprise Value of £656k which basically means, if it got bought out the buyer would be £656k better off!
The company has more cash than the market cap and is making profit!!!
Will the dividend be held? Strong balance sheet with plenty of cash so hopefully it will. In which case I am happy to hold on
£18m cash in the bank too at the interims
Well there is the low 30's I suggested may happen. Over sold imo and should bounce as it is still a very solid company. Added.
Master Trust status approved for Carey
The Carey Holdings acquisition made in October 2018 for £0.4m continues to deliver as expected, with the auto-enrolment business now receiving approval from The Pensions Regulator for Master Trust status, opening up the UK auto enrolment market to STM. This is a significant step in STM’s transition to a more UK-focused business growing revenues in the pensions division. We believe there have been 39 applications for Master Trust status from a population of 85.
Assuming all 39 applications are approved, 46 Master Trusts will be ‘looking for a home’ among those Master Trusts still in operation, whether newly authorised or otherwise. Sub-scale Trust divisions within larger integrated wealth management
operations are likely to be sold, but not to wealth management competition, suggesting STM is well placed to reap the benefits of these market dynamics.
?The Pensions Regulator approves Carey Workplace Pension Master Trust. STM’s recent acquisition has today received authorisation for approved Master Trust status, allowing it to accept auto-enrolment contributions in the UK. The approval is an important step in the company’s ambition to grow its UK-based pension-derived revenue streams and will allow STM via Carey Corporate Pensions to benefit from increased Master Trust membership sales as a result of exiting sub-scale operators.
?Estimates. We reiterate our revenue and EBITDA expectations for 2019E of £24.2m and £3.4m respectively, but draw attention to the fact that our estimates do not include any upside from the UK pensions consolidation opportunity available to STM, which should start to be realised from 2020 and beyond.
?Valuation. Shares trade on a 2019E P/E of 7x with a dividend yield of over 5%.
There aren’t many directly comparable listed peers, but the opportunity to grow EBITDA through the consolidation play suggests to us that shares are undervalued, given the ability to scale quickly from a relatively low level.
?Our view. Our model assumes that the entire Carey business (both SIPPS and Auto Enrolment) will add £0.8m of EBITDA in 2020E, initially costing £0.4m and potentially aiding cost savings of £0.5m. In cash terms this was clearly an attractive purchase, before we even consider the £2.0m bargain purchase gain. If STM is able to identify similar opportunities in the UK pensions market, growth could rapidly accelerate.
While net cash is £17m, the amount available for acquisitions after regulatory capital is c.£1.8m, enough for 4 Carey-type deals, and potentially £3m of additional EBITDA, over and above our £5.6m 2020E estimate.
A quick word on Auto the Enrolment consolidation opportunity
There are a number of firms entering the final stages of the Master Trust authorisation process after the Pensions Regulator amended the regulatory requirements for the sector and forced many participants into a state of flux. This has provided opportunities for the remaining players (including those on the verge of potentially becoming authorised, such as STM’s recent acquisition Carey).
?Carey is in the process of gaining authorisation under the amended regime, which will then permit STM/Carey to pursue consolidation opportunities.
?Before the new legislation was introduced in late 2018, requiring for authorisation to be submitted before March 2019 there were approximately 85 Master Trusts operating across the sector and competing for the membership base. As a direct result of the increased compliance burden, regulatory requirements, and those with smaller membership bases, the Pension Regulator confirmed that only 38 providers were proceeding with the authorisation process. For those not proceeding, invariably this means that these operators will be required to offload their membership in the coming months. Pricing for such books of business and/or possible white-label joint ventures will be a potential solution for those providers that have remained in place.
?Should all current applications for Master Trusts be granted, there should be approximately 55 schemes looking for a home among the remaining 30 operators. Carey is one such applicant and currently, 22 have completed the approval process.
?Basic arithmetic alone suggest there should be some organic uplift to STM/Carey’s Auto Enrolment business post-authorisation simply because there will be less players across the sector. In addition to this, the newly authorised business will have the ability to enter the bid process for the remaining books of business, boosting the potential for acquisitive growth.
?A factor playing into STM’s hands in this instance will be that some schemes are currently operated by vertically integrated wealth and asset managers with small Trust divisions, meaning that similar wealth and asset management business will fall away from the bid process due to the seller not wishing to sell to a competitor.
Notes on the adjustments to PBT
?Reported PBT includes £0.9m of technical reserve release which clears the remaining balance from the balance sheet. There will therefore be no further uplift or adjustment relating to this specific reserve.
?Our model includes a lower amount for this technical reserve release (see below), which we leave unchanged since the net effect on underlying PBT is the same after other adjustments.
?The statement refers to the previously stated £2.7m bargain purchase gain has been revised down to £2.0m (inclusive of a £0.4m call options to acquire the rest of the Carey businesses). We make no adjustment to numbers here since our £2.7m estimate falls to £2.0m after subtracting £0.7m for the insurance management goodwill write-off, which is no longer required.
?The net effect of adjustments to arrive at underlying PBT is the same and therefore the £1.6m reported by the company on an underlying basis is 60% of our full-year estimate.
?We see the company as being in a good position to deliver on our full-year estimates and note the pensions division, providing the largest share of income, is performing well, reaching 46% of our full-year forecast. Life assurance revenues, the second largest division, reached 45% of our estimate after adjusting for the technical reserve release. The remaining divisions (19% of total revenue) reached 52% of our full-year number.
Reported EBITDA in line amidst investment for the future
While one-off adjustments make the picture more confusing than many investors would like, the company is performing well and investing for the future, where we believe a scalable, reliable business has the potential to emerge. EBITDA comes
in at 60% of our full-year number, while underlying PBT of £1.6m was 60%.
?In-line interim results to 30 June 2019. Reported revenue of £11.9m was up 10% YoY and makes up 49% of our full-year forecast. Reported EBITDA down 16% YoY at £2.1m (down 8% underlying, but 60% of our full-year estimate) while reported PBT was up 62% to £3.4m (down 24% underlying). Cash at bank up 11% to £18.1m.
Integration of Carey well advanced, active pipeline of acquisition opportunities and new flexible annuity product launch will see a more UK-focused business emerge, rebranded to increase visibility. Outlook states the ambition for acquisitive growth to form a meaningful part of future growth (not currently in our numbers).
?Estimates. We reiterate our revenue and EBITDA expectation of £24.2m and £3.4m and outline the full list of adjustments over the page.
?Valuation. Shares trade on a P/E of 7x our 2019E numbers with an expected yield of 5.5%. Recurring revenues provide a sustainability to this dividend which we believe pays the patient investor until the reported investment measures begin to project the company into the next stage of positive development. Shares are down 24% over the past two years, but our peer-derived price target suggests significant upside could come through should the company begin to prove the model through a sustained period of over-achieving on results and reaping the benefits of the current transition period.
?Our view. Adjustments are frustrating for investors, but STM finds itself in a transition period whereby such adjustments aid a better understanding of the business going forward. ‘Investment’ always reads better than ‘cost’, but it is a genuine investment scenario in which the company currently finds itself. STM is at stage 1 of turning the business into a reliable, long-term investment. It has involved taking on fixed costs that will enable the benefits of scale to be reaped as the company moves forward while de-risking the business with increased governance and risk management. Stage 2 will see revenue growth from consolidation opportunities in the UK workplace pensions market and new product launches to bolster already highly recurring revenue streams. Alongside this, efficiency gains intended to increase margin will ready the business for what we see as stage 3, a longer-term period of growth where the business is reimbursed for this short-term ‘pain’.
Importantly, I expect STM to use its cash pile to make further earnings-accretive acquisitions now that it has an operating structure in place to integrate them quickly and efficiently, the effect of which will be to drive more profit upgrades in due course. That possibility is simply not being priced into STM’s current valuation, which is why I continue to rate STM’s shares in a positive light, having last advised buying them at the time of the annual results (‘STM cashed up for acquisitions’, 26 March 2019). Buy.
Analysts have pushed through earnings upgrades for Aim-traded STM (STM:44p), a company that is expanding both its UK and international self-invested personal pensions (Sipps) operations, following the company’s pre-close trading update last month. However, the shares have yet to react, possibly a reflection of the complex nature of the statement itself. Indeed, I have been asked by several readers to shed some light on it.
The first point worth considering is that when STM completed the acquisition of Carey, a UK Sipp business that has more than 4,000 members and assets under administration of £898m, the transaction was priced at below the fair value of the assets acquired when it completed in February this year. This sum has been quantified provisionally as ‘negative goodwill’ of £2.7m, which will appear in STM’s profit-and-loss account under IFRS3.
The reason why STM negotiated such a keen price was because Carey is lossmaking so there is an opportunity to reap cost savings this year and for the acquisition to be earnings accretive in 2020. The addition of Carey has also enabled STM to offer niche Sipp products to the UK market with minimal outlay, such as property Sipps, as well as scaling up the company’s existing UK and international Sipps business (1,915 and 1,271 members, respectively, at the start of 2019).
The latest guidance from STM’s directors is for Carey to report a loss of £600,000 in 2019, and break-even early in 2020. There will also be one-off integration costs of £500,000 for the Sipp business. The flipside is that we can expect annualised cost savings of £700,000 to be reaped in 2020 to turn the Carey business into profit. I understand that the integration process is progressing well.
In addition, and as I have noted previously, the company has sensibly been beefing-up its board in order to improve corporate governance and provide it with the operational structure to expand. This has resulted in the appointment of additional non-executive directors, and a newly appointed chief operating officer, the effect of which is to increase annual operating cash costs by £500,000 in the short term. There will also be a non-cash goodwill writedown of £700,000 in the interim results after the company exited its insurance management business.
The net impact of all these adjustments led analyst Nik Lysiuk at broking house FinnCap to raise his 2019 pre-tax profit estimate from £4.1m to £4.4m on revenues of £24.2m to produce earnings per share (EPS) of 5.8p and support a 10 per cent hike in the payout to 2.2p a share. The broker also upgraded its 2020 pre-tax profit estimate by £300,000 to £4.7m, implying EPS of 6.2p and a dividend of 2.4p a share. Strip out net cash of £15.6m from STM’s market capitalisation of £26.2m and effectively a business that should make a clean pre-tax profit of £4.7m in 2020 when the benefits of the Carey acquisition will be seen is being valued at little over £10m.
Ex-dividend day tomorrow will be pushing the price up today.
P/E of just 8.72 vs industry average of 12.7.
NAV 56.5p.
20% operating margins.
Steady profit making.
£17m cash.
No debt.
Brexit safe.
Broker target of 100p.
Trying to find negatives here.
Chart wise is the biggest negative I see where it shows it could drop into low 30's but it is really hard to tell at the moment which way it will go.
Other negative is the £100k drop in revenues from previous year. Not much and this is offset by increased margins resulting in higher profits.
The fundamentals of this company are very strong and imo out weigh the charts. Certainly seems good value. Infact, I wouldn't mind it dropping to low 30's as it would create a fantastic buying opportunity.
08/03/2017 08/29/2017 09/22/2017 10/18/2017 11/13/2017 12/07/2017 01/02/2018 01/26/2018 02/21/2018 03/19/2018 04/12/2018 05/08/2018 06/01/2018 06/27/2018 07/23/2018 08/16/2018 09/11/2018 10/05/2018 10/31/2018 11/26/2018 12/20/2018 01/15/2019 02/08/2019 03/06/2019
?We retain and confirm our price target of 100p, providing the potential for over 100% upside and exhibiting what STM ought to be worth at scale.
?This ignores the upside of:
?An already complete but not fully integrated acquisition, Carey Holdings; and
?The potential for further earnings enhancing acquisitions. Note Harbour was integrated within 6 months, adding 1,624 QROPs and £1m+ to the top line (c.5% to group revenues).
?We use a peer group of ‘at scale’ financial administration companies, but recognise that each has a slightly different business model and therefore a shifting exposure to the industry drivers outlined in our Investment case revisited, above.
?Estimates to be revisited as clarity emerges on the true upside of the Carey acquisition. ?For now we note STM’s metrics against the peer group:
Higher than average EBIT margin, proving scale will prove very advantageous to operating profits.
?Strong EPS growth (+11.5%), behind Sanne (+17.9%) and JTC (+13.3%).
?Low P/E multiple, representing value for a firm with immediate upside potential to
estimates given the recent acquisition of Carey.
My kind of share, nice and quiet. Thanks.
Welcome to what is a fairly quiet backwater of LSE.
Bought in this morning at 48p. Not sure if it has finished dropping but happy to add if it tests the support in lower 30's.
Low pe of 8.3
NAV is 54p
Divi
fincap target of 100p
Simon Thompson has tipped this as a buy at 55 pence in this weeks Investors Chronicle
To all parties - and looks like trading is unaffected and results out soon. I expect share is now undervalued.
I’m pretty sure they are not refusing. Just showing that it is unnecessary. To me it looks like the regulators are confused and trying to save face - it looks like stm disclosed all and in a timely manner. An investigation would take time and be damaging over that period so to win the appeal and move on quickly I think would be best
Surely to goodness it is not a great strategy to refuse the regulators the ability to get in and look at the business? Say they win the appeal and keep the inspectors out, it will only mean continued high level of scrutiny ad infinitum, and the taint of suspicion hanging over the shares. A small listed company should never be trying to take on the regulators. It may be that you've done nothing wrong but the market will not trust you again until the regulators give you a clean bill of health, that's just the reality of life. Otherwise it's death by a thousand cuts.
A stay on the appointment of inspectors until appeal heard on 18 January. I think that if willing to wait until then their concern must be less than it was - maybe stm will win the argument.