Three stocks highlighted by our recent AlpaScreen have all exhibited steep share price performance year-to-date, each now standing materially above pre-covid levels, all helped by strong underlying market dynamics and/or positive upgrade cycles through the past 12 months. In all three cases, valuations looked to have over-extended allowing the positives to be overly dominant, potentially ignoring risk and matters that still need to be worked through or proven. Thus, the strong outperformance for NCC, St James Place and Mortgage Advice Bureau could struggle to continue.
Ever onwards and upwards?
- NCC Group (NCC). An ever more connected world needs both confidence of access to mission critical software and an assurance that connected systems are safe and secure, needs which will only increase. These needs fully describe NCC’s market proposition. Following a transformative acquisition, NCC has the scope to deliver sustained growth if the marriage value can be unlocked. There could be good value here, but many ifs and buts need to be worked out, especially the more tangential benefits from the Iron Mountain acquisition and whether there will be a short-term dent from high wage inflation. At 26x PE, risk looks underpriced.
- St James Place (SJP). This wealth management business is not without a history of controversy, but undeniably does seem still to be able to deliver growth and income. After two and a half years of indifferent share price performance, the shares have near trebled post-Covid, but what has changed? Costs are to be better managed and some poorer practices eliminated which has driven a strong upgrade cycle, but the share price has outrun the higher forecasts. The shares look pricey fundamentally, and more so against the peer group.
- Mortgage Advice Bureau (MAB1). A slowing housing market with increasingly strained affordability might appear negative for a mortgage advisory business. However, MAB’s model is based on market share gains within a highly fragmented industry (in which it is already the market leader) which has been well-executed, allowing good growth even when the mortgage market was in the doldrums. The shares are rated, however, on a PE >40x, which is misaligned with even the best outcome and leaves the shares looking over-bought.