Snatching defeat from the jaws of victory or...

... results today from Jarvis Investment Management (JIM) the small (£60m Market Cap.) stock broking outfit. The results were excellent, as expected, with the headlines of a 22% increase in profits and earnings together with a 34% increase in the dividend, although the Chairman's statement rather managed to snatch defeat from the jaws of victory. This was quite downbeat in tone given the increased regulatory requirements that their industry is facing. He said that considerable time and resources have been, and continue to be, spent preparing and satisfying the requirements of MIFID II and GDPR (General Data Protection Regulation). He went onto say:

"That these all come at a commercial cost for the firms' required to implement and enforce them. In the latter half of the year, and going forward, we will be incurring higher costs on software, data feeds and higher staff numbers to ensure policies are correctly implemented and monitored."

He then went onto talk about the growth the business has seen over the last few years and how it has now represents the maturing of Jarvis from small company beginnings. He finished off by saying:

"With that in mind I am urging investors to be realistic about near term results. As highlighted above our cost base has increased, so revenues will need to increase at a higher rate to maintain the growth of the past. That is not to say it cannot be done, especially if interest rates increase."

So he seems to be trying to dampen expectations after such a stellar year and suggesting that some growth will be required just to cover the extra costs and I guess if it doesn't materialise this year then the profits could even go backwards given the higher cost base.
It is however worth bearing in mind his comment about interest rates as they can and do earn quite a bit from cash on deposit with them and you never know the B of E might one day raise base rates from their emergency level of 0.5% given the inflation & employment situation.

So a bit disappointing to say the least and to see the shares off first thing, but probably not surprising given the statement, although the initial fall seemed a bit over done to me. We will have to wait and see where the forecasts come out given these figures probably beat expectation but the statement has probably tempered the potential for any upgrades or could even lead to downgrades. This should be clearer by the time of the next monthly re-screening of the CISP so will have to see how it looks then once the dust has settled.