Stm Share Discussion Threads

[smithie6] 14/1/2021 12:51

"[Today 12:14] Brooks Macdonald Group PLC - investment management firm headquartered in London - Total funds under management for its financial second quarter ended December 31 increase by 14% to GBP15.5 billion from GBP13.7 billion as at September 30. Read More"

different type of business, but in the same sector of finance

AUM of 15.5 billion
vs 8.7 billion at STM

while Brooks has a cap. value of 293 million whereas that for STM is just 18.4 million !
for the same AUM the comparison would be 18.4 million versus about 146 million at Brooks for 7.8 billion of AUM

orders of magnitude of difference

could STM adjust its business model & provide some of the same services to clients that Brooks provides to its clients, in order to get a rating more similar to what Brooks has ??

[smithie6] 13/1/2021 20:18

if of interest to anyone

" Approx. £8.7 billion assets under administration across pensions, life, and trust & company business units"

from the STM website

£8.7 billion !!!

:-0

[smithie6] 12/1/2021 11:32

calculation/estimate of nett tangible/'real' assets *1
from last results (H1, not audited but I think we believe them)

to include things like tangible property, accrued income, payables-receivables etc which any past discussions of the nett cash does not include, & they should be included in estimations of the real nett assets of the co.

*1 - 'real' assetts being as defined in this post, an effort to define the real tangible assetts

- reported "shareholder assets" + future lease costs (which will be paid by future revenue/profit) + deferred revenue - intangible assets

= 34.6 (shareholder assetts) + 4.4 (deferred income, invoiced but not yet earned, treated as a liability in accounts) payable) + 0.8 lease liabilities - 20.6 ( intangibles)

(lease liabilities. check, since ~2.7 million in last annual accounts)

= £19.5 million

(in this number the deferred income is counted as 0, since +4.4 just cancels out the -ve 4.4 million in the accounts.)
("other creditors & accruals" is given as a payable of 4.4 million, while which I recall that 1.7 was accrued income of 1.7 million is defined as a current asset,
hmmm, 'me no understand'
(accrued income = work done but not billed)).

so, the 1.7million 'accrued' is already included in shareholder net assetts

'if' any of this 4.4 million is in reality an asset in the eyes of normal people, but not according to IFRS16, then the value of £19.5 million would be increased

Conclusion
This value of 19.5 million is close to the value for nett cash previously discussed on this forum (18-19 million).
It affirms that the real nett assets are very close to, or less than, the capital value of the co. , which imo seems nuts (& noting the PBT prediction of 4.7 for 2021, the cap. value being just 4x the predicted PBT ! )

But if some of that creditors & accruals is in fact not a liability in the eyes of normal people then the nett 'real' assets would be higher. (I will try to look in the annual report so see if it says what is the 'creditors & accruals', H1 report says that very little of it is bank debt but doesn't define what it is

(I think a value closer to 21 million is more accurate...due to adding back the lease costs liability from annual accounts data which imo is not 100% a debt since future turnover will pay it. & noting that , for example, future wage bills & electricity bills are not seen as being a liability or debt)

[smithie6] 11/1/2021 19:30

ref posts 1045 & 1046 & mention of regulatory capital

I have some info from the co.

- regulatory capital & solvency requirement
the calc. allows deferred income to be added back to the allowable assets as this is not a true liability in most countries, but not in Malta.

- so, regulatory capital is not identical to nett free cash (but is higher imo)

- for QROPS & CTS subsidiaries the reqt. is 3 months of costs (which is what I had thought was the basis for all of the reg. cap. ; clearly not)

- for the SIPP businesses it is a % of the assets under administration.

- for life assurance companies it is based on actuarial calculations which take into account a number of assumptions such as risk,.......& .....

(I'm glad I don't have to calculate it !)

so, with different types of business in different countries it is not a quick calculation for a PI to do

(I assume/guess that STM perhaps uses Excel or some automatic calculation to produce the value of reg. capital reqd & reg. cap. held.
=====

from the interims reported in Sept
"The total regulatory capital requirement across the Group as at 30 June 2020 is GBP18.6 million."

while cash minus debts/loans was £17.6million


btw
deferred income was 4.4 million

adding the 2 gives £22 million which I think roughly equates to the amount to meet the regulatory capital reqt. (although phps one needs to consider/decide about the lease liability since imo one could whether it is full liability on day X, since future turnover will/should pay it)

so ~ £22 million +/- X million clearly exceeds the reqt. of £18.6 million, with some margin, as you would expect.
(arguably my guestimate of £22 million might be higher but depends on the accounting treatment/rules for whether accrued income & the difference between payables & receivables can be included in 'regulatory capital')

[yump] 04/1/2021 20:17

Thanks for details. I do need a few safeish dividend payers and possible rerating/recovery would be a bonus.

[smithie6] 31/12/2020 20:08

with Govt. debt mountains now being even bigger than they were before the Covid crisis

there is no way that interest rate are going anywhere for years, otherwise Govts & the EU would be bankrupt !

so, imo a clear choice of putting cash in the bank to get almost 0%
...or in to companies like STM where the annual increase in shareholder assetts + the divi is a much higher return.

[smithie6] 31/12/2020 20:01

'jump profits longer term'

if my memory is correct a short/medium term hope is sales growth by crossing selling of existing products & more sales into Carey workplace pensions, which hasn't happened taken off so far but it has been a very topsy turvy year with Covid so I would assume that many businesses have been very busy coping with enormous changes & pressures, so they haven't had much interest in the subject of changes to workplace pensions. That sector is apparently closed to new entrants (ref. STM) & some businesses are sub scale & probably looking to exit (a la Carey & ref. STM) & STM has cash left to do another acquisition (£3-4 million)....& because of Covid the short term selling priced may have reduced while the long term benefit is phps unchanged, assuming that the world returns almost to normal by the end of 2021 (except for Govts having much bigger debts !!).

The subsequent perf. payments for Carey might be lower due to Covid which might give a benefit to STM short term.

[yump] 31/12/2020 13:09

Is there anything other than acquisitions that could jump profits longer term ? - I haven't got as far as that sort of detail. After shares for my SIPP, so while 50%+ would be good, it would be nice to think they could be held for longer term.

I'm always slightly nervous about the risks of bedding in acquisitions, although as STM have a good core business, its not so much of an issue as it is with all these other businesses that grow by acquisition before they've got much to grow on.

[smithie6] 31/12/2020 13:07

"What will be taken off the EBITDA figure I'm not sure"

all that info is known.
& easy to see in the accounts & RNSs
& some in my post 1042

[smithie6] 31/12/2020 13:03

my thinking is different

Im thinking that a big fish might want the big range of products that STM has, to market at almost no cost to their large customer base (especially AJ Bell)....& to increase their attractiveness to new potential clients, by having a bigger range of products

std. business practice imo that once you have clients tied in, then if you can try to sell them other 'stuff'

(while yes some sections that are not useful/wanted, then sell them )

--------

While overall I would prefer that STM isnt bought up & instead finishes doing integrations of acquisitions & finishes current cost cuttings by automating more processes. & then does more acquisitions.

[yump] 31/12/2020 13:02

Smithie6

I did thanks. They do seem very keen to give out a decent level of information to investors. What will be taken off the EBITDA figure I'm not sure.

[lundun42] 31/12/2020 12:56

For all it's overall small size, as well as UK pensions STM seems to have lot of subsidiaries operating overseas in trusts, pensions, life insurance so looks like quite a complex group of businesses. I do wonder if a UK pensions operator like AJ Bell would really want to take on dealing with or disposing of all the other parts of STM when you could imagine all they really might want is the UK pensions parts to add to their UK customer base? It would be nice to think that there is a potential bidder out there sharpening their pencils. Any emerging t/o bid interest would certainly help pull this share price out of the doldrums.

[smithie6] 31/12/2020 12:56

I think you are missing basic data which the mkt already knows about for expected future profits.

£4.7 million ebitda


read post 1042

[yump] 31/12/2020 12:38

Just having a nose around for some sound shares, it seems this is generally on a p/e of 10 ish, whatever the earnings.

30p is about 10x the 3p earnings that 2mln profit will give.
So really depends on what step-change means - as they say its from a lower base. If 3mln profit, then 4.5p earnings next year, then 45p ?

My concern would be that we won't be back even close to normality until mid-year best and covid has definitely had an impact on new business. Combined with the other headwinds it makes it seem quite uncertain.

Looking back to 2019, it wasn't too good to give an unbeat interim statement, followed 2 months later by an effective warning about headwinds.

Undecided at the moment and wondering if there are things in the pipeline that will jump it over the previous higher profits, although on say 2 year view 50% upside looks achievable, plus the dividends.

[smithie6] 31/12/2020 12:08

btw
XPS pensions would surely be a possible buyer

or AJ Bell

or phps even Kingswood. kwg. who have raised cash to do acquisitions

in any bid situation the high amount of cash held would surely help bolster the attractiveness of STM
to a buyer, & hence of the acquisition price.

imo

[gaiusgracchus] 31/12/2020 10:19

Thanks Smithie. Yes, I see in the most recent interims that their total regulatory capital requirement across the Group is £18.6m. Seems a lot but in the words of every Love Island contest: it is what it is.

[smithie6] 31/12/2020 08:26

Hi
'cause of regulatory reqts.
for the financial business they do

I think "one" of the FCA requirements might be to have cash for X months (3 ?) of the costs of operating the co.
& other reqts. to meet.

btw the cash held is very small vs the value of pensions & assetts that they administer for clients, which is massive.

(I'm hoping that the cost cutting & integration of acquisitions might free up some of that regulatory reqd. money; I think this is mentioned in 1 annual report)

----

If you e-mail the co. & ask, phps they can state what the precise reqts. are for "regulatory cash".

[gaiusgracchus] 30/12/2020 13:27

I'm new to this one and am interested because it looks cheap. Before I dive in could someone help me out with a hopefully easy question please? Why do they have so much cash on their balance sheet? It seems too much to me.

[smithie6] 14/12/2020 08:52

from the RNS
"we are confident in a step-change in profit growth for 2021"

"step-change in profit growth".

...just need the patience to wait

[smithie6] 08/12/2020 13:46

if we take the Finncap number of £4.7 million for ebitda

& then take off ~£200k for interest on the loan of £5.5 million (£150k might be closer since >50% of the loan is unused at the moment, so lower % interest rate)

& say £ 500k for tax

would give adjusted (*1) PAT
= £4.7 - 200k - 500k
= £4 million

*1. excluding depreciation & amortisation since they are not cash charges

£4 million versus a cap. value of £18 million.
& this is also roughly the cash generation excluding one offs such as loans, acquisition payments.

nuts imo. bargain.

-----

step up in cash generation
so phps we will return to the previous level of divi payment. 2p/year. =6.5%.

if the full 4 million of cash generation was paid out then the divi could be ~£4million/60 million shares . 6.7p !!
ok, such a high divi won't happen but the calculation shows the high cash generation per share.

[smithie6] 08/12/2020 13:38

repeating a previous post of mine


+ £1.65 million of revenue in 2021
(+7% is given in the RNS)

while little change to costs
("whilst operating expenses are only forecasted to increase marginally and thus enhanced EBITDA margins will be delivered")

which would mean, the EBITDA increasing from ~£3.6 to ~£5-5.2 million

which would be a step up !


-----

I understand that the Finncap estimate EBITDA is £4.7 million, a number that fits with my estimate & the news in the RNS.

versus a cap. value of £18 million.
a ratio of 1:~4 !

far far too cheap imo

[smithie6] 01/12/2020 11:20

if STM hasn't already bought it (I can't remember ) then it looks likely (noting the cash borrowed for acquisitions) that it would buy the remaining parts of Carey that it doesn't own, 25-30% which would increase the reported turnover by ~£1million/year.

(if so the annual turnover would increase to ~£26.4 million)

[smithie6] 01/12/2020 10:23

so
+ £1.65 million of revenue in 2021
(+7% is given in the RNS)

while little change to costs
("whilst operating expenses are only forecasted to increase marginally and thus enhanced EBITDA margins will be delivered")

which would mean, the EBITDA increasing from ~£3.6 to ~£5-5.2 million

which would be a step up

-----

(between EBITDA & PBT there are some hits (2021 numbers), such as from interest from the new £5.5 million loan & depreciation-amortisation (see the RNS) which is a non-cash cost.....but the underlying business perf. will see a marked jump

compare this EBITDA of ~5 million with the cap. value of £18.5 million. ratio of less than 4 !!. (25%)

in a world where the bank interest rate is close to zero

& hence imo this share is a strong buy

-----

(in 2020-2021 (22?) the perf. payments for the acquisition, will imo not hit the maximum amounts...since the RNS infers I think that little organic growth in turnover from the aquisition
....leaving a bit more money available for other acquisitions)

---
on the -ve side there seems to be little organic growth in revenue but it is being provided (at a slow rate compared with say Tesla) via acquisitions but at a high rate over 5 years, for a finance company doing pensions & stuff. (£17.4 million revenue in 2016 & ~£25.4 million in 2021)

[smithie6] 30/11/2020 15:47

5.7% spread for last buy & sell trades

for holding the shares for X minutes !

the trading needs automating imo & get the spread reduced