Stm Share Discussion Threads

[the count] 10/9/2020 13:04

--->SMITHIE6

Thanks for your response.

Yes, even if the cash has to be held for regulatory purposes, it is still a company asset, the mosst liquid possible, albeit with restricted use presummably.

But I will have a detailed read of the RNS this weekend.

Anyway, either way, I do agree that this stock is stinking cheap.

Thanks again for your quick response.

Regards,

THE COUNT!

[smithie6] 10/9/2020 12:58

cash & STM

it is a basic for STM which you should already know, if you did any research. ;-)

The nett cash is close to the cap. value !
but most of that cash needs to be held for regulatory purposes, so it cant be used for acquisitions or handed out as a special divi.

but
it surely shows that STM is way undervalued if valued as a potential takeover target, by a bigger company.

&/or if valued for the earnings & the cash.

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subduing factor is that 'we' might need to wait to see the price really move up....to see that the hoped for increase in profits due to cost costing & acquisitions start being delivered. At this moment that is in the future, but imo not so far in the future (read the RNS :-) )

("...drive for improved margins, I am pleased to confirm that our key IT projects remain on track with regards to scheduled completion"
& 'increase in turnover should/will also increase the % profit margin' )

[the count] 10/9/2020 11:40

--->SMITHIE6

Well, I bought in today based solely on that tipster's write up.

And then I discovered this thread as well, so nice to know I am not alone.

But when you guys work on a PER ratio, wouldn't it be more indicative to subtract the cash position from their market cap, and then to base it on the remaining market cap net of cash, or do they have massive debts.

Haven't had time to research this further, so thought I would ask you guys on here, hoping one of you knows.

Regards,

THE COUNT!

[smithie6] 10/9/2020 09:14

where does that tipster get his turnover number for next year from ?!!!

£28.4M !!!!

up from Finncap's estimate of £24M for this year.

ie. +£4M

I'm an STM fan but if a tipster quotes some big jump in numbers such as turnover then imo he needs to say where it comes from.

is it from Finncap ?

----

the recent acquisition should produce about +£2M in turnover, taking it to £26M, if achieve £24M this year.

perhaps Finncap are already including the turnover for expected future acquisition, even though nothing is yet announced
----

nice to see the tipster making the same points as me.

---
the possibilities of shareholders making a good % gain over 12, 18, 24 months are definitely there, hopefully it will happen

[value hound] 09/9/2020 18:28

From Master Investor FWIW:

STM Group – Looking very cheap indeed
By Mark Watson-Mitchell 09 September 2020

£700m assets under management, £17m cash in the bank, £2.5m profits, 85% annual recurring revenue, 9 times earnings, 5% yield and only valued at £19.6m – looking very cheap indeed.

Yesterday’s interim results announcement by this financial services group looked disappointing, but that was just the ‘on the face of it’ view.

I spoke to the CEO and finance director of the £19.6m capitalised STM Group (LON:STM) and I repeat my opinion of the company set out in my late May profile – that the shares are massively undervalued.

The AIM-quoted company has operations in the UK, Gibraltar, Spain, Jersey and Malta. It employs some 260 people and has over 160,000 customers across 126 countries.

Its basic business is the delivery of specific financial service products to professional intermediaries, together with the administration of assets for its international clients with a view to help wealth structure for retirement, estate and succession planning.

The half-timers to end-June this year reported revenue down £0.1m at £11.8m and pre-tax profits of £1m (£1.1m). The fall back was due to a mix of Covid-19 impact and increased costs, together with heavy IT spend.

The staggering point that the market seems to have missed is that it has a magnificent annual recurring revenue running at 85% of the total. Just think of the stability that offers any finance director, or banker, in assessing ongoing commitments.



Although the group has a £5.5m acquisition facility with RBS, it is actually carrying a very healthy £17m cash at bank.

The group is actively seeking out fresh acquisitions but is mean on its purchase criteria. It is operating an ongoing ‘buy to build’ strategy and has been very successful in doing so.

It looks for other companies in its own marketplace operating with revenues of £2m to £3m for which it is prepared to pay 2x revenue. Larger companies elsewhere in the sector are paying 5x to 7x for books of larger revenues. The key factor, though, is the longevity of the pension books that STM acquires.

On the new business side, the company has seen a bit of a slowdown in the first half. There is a lot of enquiry and quoting given but decisions have been slowed down by the lack of person-to-person marketing because of the virus. But that will soon start to pick up again.

Two thirds of total revenues come from its pensions business, a sixth from life assurance, and similar between corporate trustee and other services. As a matter of interest, it has about £700m of assets under management.

The group has some 59.4m shares in issue. Large holders include Premier Miton (16.99%), Clifton Participations Inc and Alan Kentish (CEO) (11.31%), Septer Limited (10.85%), River and Mercantile Asset Management (5.64%), Kestrel Partners (3.69%), and Aeternitas Imperium Privatstiftung (3.59%).

The company’s broker, finnCap, is looking for a full-year turnout of £24.1m revenue and £2.5m pre-tax profits, worth 3.5p in earnings and double covering the 1.7p estimated years dividend per share. That is on 9 times earnings and a 5% yield.

So, with the 2020 financial year close to ending we look forward to predictions for the 2021 and subsequent year.

£28.4m in revenue next year could almost double pre-tax profits to £4.5m, giving 6.2p of earnings and treble covering a 1.8p dividend per share. That would put the shares out on 5.2 times prospective earnings.

Then the 2022 year might see £30.2m revenues and £5.9m of profits, with 8.2p of earnings and a four-times covered 2p dividend per share. Well, a 3.9 p/e – what more can I say?

If you haven’t already got the message, then surely those estimates will convince you that this group is on an excellent recovery track and that its shares are substantially undervalued. The shares closed last night at 32.5p after a dealing volume of some three and a half times the daily average.

My short-term target price seems easily attainable and could give an upside of over 50% from now.

[smithie6] 08/9/2020 10:19

:-(

reported profit numbers not so good (but underlying numbers are only down about 10%)....but recurring numbers are good imo

given time hopefully the costs will be reduced & profits will rise again, as the co. has forecast.

----

underlying/'before' profit = £1.9M (excluding finance costs, amort, deprec. etc

if x2 for a full yr you get £3.8M

add 0.6M profit (only in the future once cost cutting implemented) for the recent acquisition

& you get £4.4M as the 'before' number

& if another acquisition is made, as expected
then phps 4.4M will hit 5M. (the after number will be lower of course, after deprectn, amort, tax etc)

& the co. sits on a big pile of cash

imo the cap. value of £19M is too low for these numbers; while yes, reporting an underlying fall in profits is not going to make the share price rise on reporting day.

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divi of ~3% while we wait for cost cutting to increase the profit numbers..

.& the cost cutting with the low p/e, EV & high recurring revenue will hopefully minimise the downside risk (although I thought the same at 34-35p, (well, not fallen far from there))

(& holders since about Jan. 1 2016 have received divis of about 7p, not bad)

[cheshire man] 08/9/2020 08:15

Looks like a steady ship to me value hound and more acquisitions on the way by the looks of it:-)

"The recent acquisition of the Berkeley Burke SSAS and GPP companies are a welcome addition to the UK business portfolio, and demonstrates our commitment to further building our UK operations and delivering on our growth potential. In addition, we continue to pursue acquisition opportunities where we are in active discussions. "

[value hound] 08/9/2020 08:08

Good results, excellent value still - and worth more like 50pps IMO.

Any thoughts?

[smithie6] 27/8/2020 09:54

ah...good Finncap info

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onwards & upwards !

[fillipe] 27/8/2020 09:37

Yes, indeed.

I reckon STM is coming along really quite nicely.

The bests on show at the bid/ask are 35.2p v 37p and particularly healthy, given the 18.56p low of 17-3-20.

Just a reminder that 13-8-20, finnCap reiterated their target of 53p, which I look forward to reaching.

f

[smithie6] 27/8/2020 09:07

nice 2p rise this morning

been an on-going trickle of buys in past days (& a £9k buy yesterday afternoon) & not enough sellers to balance that

[smithie6] 19/8/2020 13:29

quick reminder of some perf. numbers

(lifted from a competing website)

operating margin: 18%

return on capital employed: 30-33% over last few yrs

money raised by issuing shares : £22.4M

retained earnings : 12.5M ( & a good few more million of earnings handed out as divis)

shareholder funds: £34.5M

(those last 3 pts of data show a profitable business that made money for ppl who have "subscribed" for new shares; useful info imo)

----

imo the cap. value is nuts for these numbers (the numbers show it is a very good business & expanding)

I guess the mkt doesn't value it highly since the organic growth is not there. That might change over time with the recent move to expand in the UK & various acquisitions.
...anyway, the shares are still underpriced.
(2-3 yr EPS might be 8p, if achieved that would give a forward p/e of just over 4 !, ie. 25% profit, compare with bank rates close to 0%).

[arthur_lame_stocks] 18/8/2020 13:13

I'm happy to see them grow through modest acquisitions for cash and then pay down any debt out of profit. Much better than issuing shares to buy another company imo.

[value hound] 18/8/2020 12:57

Likewise Smithie6; I have "review at 48p" entered with hope into my spreadsheet.

[smithie6] 18/8/2020 12:31

I think the shares should today be 45-50p, clearly the mkt doesnt agree, so far.
hopefully over the coming months we'll see the share price rise a bit, partly since there should be some new profit calcs published from analysts/tipsters over time.
..& phps some news that integration is going well, or new IT is progressing well, or another acquisition announced

[smithie6] 18/8/2020 12:27

btw
Strategy
STM is trying to increase its capability, distribution network, product range etc in the UK & to offer new clients the existing STM products/services including from overseas such as its Malta office.

imo if a lot of that can be done via small acquisitions rather than bigger ones then imo that's good news

-----

& imo smaller acquisitions are probably cheaper since some of these acquisitions with £1-3 million of turnover are operating at close to break even because of high % of income consumed by the management, mnmgt pensions, mnmgt cars, company accounts, co. regulation supervision staff, auditing costs, co. accounts,....

& after integrating inside STM some of those costs can be reduced. ('this year break even & next year 0.6M profit')

its phps dull but imo its 'good' from an investing viewpoint. One just needs some patience & the work of the co. to successfully do the integrations & succeed with getting more processes to be automated/on-line using IT/software.

[smithie6] 18/8/2020 12:14

perhaps I didnt explain my point enough

If a £1000M cap. value company borrow 250M to make acquisitions, when it has no debt, I think we'd all agree it is fairly significant transaction.

If a 20M company borrows ~£5M to make acquisitions it is also a fairly significant transaction.

I think you have to agree.

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a £10-20M acquisition by STM would be a merger & require issuing of new shares.
For 20M it would be a 50:50 merger.
1 new share for each existing one, given to the owners of the acquired company. (since STM couldnt imo borrow say 20M, & shouldnt !) Would infer a high amount of risk for STM shareholders & loss of control for the existing large shareholders in STM (& they probably wouldn't want that)

& such a share based merger would half STM's existing profit/share, while adding the profit of the merged co.

That's not the type of deal I would want.

[lundun42] 18/8/2020 10:35

Smithie6 you said "little debate here, surprising after the co. taking out a loan of 1/4 of the cap. value of the co......a significant step imo".
My point is that surely the cap. value of STM has little relevance to the new loan. Yes it's a step but imho it's not that significant in the context of STMs past borrowing levels and acquisition activities, more like business as usual given their regularly stated strategy of further acquisitions. Yes the latest one has helped the share price and another should do the same but as I intimated before imo so far these aren't of the transformational kind that would really get the share price motoring. A £10-£20m acquisition, now that would be significant! It will be interesting to see what their half year results look like next month.

[smithie6] 17/8/2020 17:02

if you are replying to me, you seem to be replying to points/arguments that are not the points that I actually made, I think you misunderstood my posts, or I wrote them badly.

=======

"I just took from the latest announcement that further acquisitions are in prospect and that what remains of the £5.5m after the Berkeley one gives an indication of the likely costs of any future one(s)."

...agreed.

(£1.4M paid now, from loan of £5.5M. So £4.1M left (if put aside future payments of £1.5M), so yes, at this moment there is a chunk of cash available for other aquisitions)

[lundun42] 17/8/2020 16:50

I'd have thought that any loan is based upon the lenders view on the company's ability to repay it - Revenues/Profits - rather than its market cap. If you look back over the previous company reports STM borrowed £3.3m in 2016 to fund the acquisition of London and Colonial. At that time revenue/profit was around £16m/£3m and now with 2019 revenue/profit at £23m/£3.9m and management reporting trading so far this year holding up, getting agreement to borrow £5.5m is surely hardly out of step from a previous borrowing/credit risk perspective. I just took from the latest announcement that further acquisitions are in prospect and that what remains of the £5.5m after the Berkeley one gives an indication of the likely costs of any future one(s).

[lundun42] 14/8/2020 14:11

Their website seems to be down today. Can't access company info.

[smithie6] 14/8/2020 13:41

little debate here, surprising after the co. taking out a loan of 1/4 of the cap. value of the co......a significant step imo

[smithie6] 13/8/2020 16:06

"In addition, finalization of the new bank facility will allow us to further continue to pursue our acquisition strategy for other opportunities."

"further continue"

The company couldn't have said 'expected another acquisition(s)' any louder !

(& 'perhaps' the bank has already run its eye over the financial numbers of another possible acquisition before agreeing the size of this new loan ???, fair amount higher than is needed now for this acquisition)

[smithie6] 13/8/2020 16:00

well done to the MD, the FD & the BOD.

[smithie6] 13/8/2020 15:58

well, I've been a fan of STM on this msg board for quite a few years

& Im very pleased with the acquisition news today.

& I like that a high % of the cost is deferred & linked to performance

& I like the use of debt, to provide some gearing

no new shares, no dilution, lovely.

one could argue that this share is just so boring, compared with say an app company or a virus testing company

but often in investing 'boring' can be very good.

the co. has a business model (growing by acquisitions & reducing costs to grow the profit (including by the use of more IT/software))

& we have to wait to see those things take place...

Im quite happy to wait, risk/reward wrt the share price in 18-24 months is excellent imo

(so, I upped my holding today by 50%)