I thought I'd share a quick back of the envelope calculation I've done this morning on Jarvis Securities (JIM) which subscribers will know was bought for the Compound Income Scores Portfolio last April at around 94p as it Scored well and I saw it as benefiting from a pick up in trading by private investors that we were seeing at the time on the back of the market volatility.
The news today was the announcement by Equiniti of the disposal of their Share Dealing arm to Interactive Investors for £48.5m. Based on that Corporate sale price and the stated EBITDA of £3.3m for 2020 that equates to a 14.7x EV/EBITDA multiple and a 22.75% EBITDA margin on the stated turnover of £14.5m.
Looking at Jarvis they are forecast to have similar turnover of around £13-£14m for 2020 . I suspect these estimates may be on the low side as there don't seem to have been much in the way of upgrades since their last positive update. We won't have long to wait to find out though as I believe their final results for 2020 are due to be reported in the next week or so.
Digging further into Jarvis's numbers they are on an Enterprise value (EV) of about £97m or roughly twice what Equiniti has just been sold for in a corporate transaction which can sometimes be a good guide to valuation for similar businesses, which Jarvis is in this case. It does however earn EBITDA margins of roughly twice those indicated as being earned by Equiniti which I think should justify the EV being twice that achieved for the Equiniti business.
So the bottom line is that this leaves Jarvis looking perhaps fairly / fully valued on this basis but I'll await the results with interest in the near future to see if they can be current forecasts and hear what they might have to say about current trading and the sustainability or otherwise of the boom condition they have enjoyed in the last 12 months. The conventional wisdom seems to be that the trading boom will tail off or normalize in the year ahead.
Thus Jarvis may not be the bargain it was just over a year ago, but still looks reasonable value on around 17-18x with a yield of nearly 5% as they have raised the dividend by around 70% this year on the back of their successful trading. While on the chart at the top it appears that they are towards the top of their recent range and trend channel so it will also be interesting to see if this provides resistance or if they manage to break out of this range on the back of the results - one to watch out for this month for sure.
Update as at 11/3/21 post results announcement.
These were largely as forecasts suggested although turnover & eps were modestly ahead at £13.3m v £13.2m and 12.7p v 12.4p respectively, while the dividend had been announced previously. These figures did represent 43% growth or thereabouts on the previous year reflecting the boom conditions for share trading firms last year.
Encouragingly in the brief Chairman's statement he said the following: "I expect our trade volumes to continue at higher levels than we experienced in 2020 and the years leading up to that. I also see no signs of organic growth slowing as we move into 2021 with a healthy pipeline of potential new outsourcing contracts. Client numbers and cash under administration continue to increase, we are seeing profitable growth in international settlement and our relationship with Primary Bid."
This suggests to me that the 8% growth in earnings to 13.7p that are currently forecast should be achievable if growth does settle back and this would be more in line with the growth seen in 2019. While the dividend is forecast to rise by a similar amount to 12p. At the current price this morning of around 250p this leaves it on around 18x with a 4.8% yield. The yield is around the middle of the range of yields (roughly 3.5% to 6%) it has traded on in the past while the PE rating has peaked out at around 20x in the past. So that leaves it looking fairly / fully valued I'd say unless Mr. Market wants to move it on towards its peak rating of the past or even re-rate it beyond that towards the ratings it ascribes to the likes of AJ Bell and Hargreaves Lansdowne, but I wouldn't count on that.