SimplyBiz (SBIZ:197.25p) listed its shares on London’s junior market in April and has slipped below the radar. However, the leading provider of compliance, business and technology services to 3,628 financial intermediaries offers solid prospects for earnings growth, and a progressive dividend policy, as maiden half-year results this week highlighted.
A shift in the IFA industry towards direct authorisation, and the requirement for financial intermediaries to comply with a raft of new legislation, means that a growing number are seeking the services of companies like SimplyBiz who provide the services they need to carry out their business. For example, software licence income earned from financial intermediaries surged by 18 per cent to £1.9m, a trend that’s set to continue given that SimplyBiz has penetrated only a third of its total addressable market here.
SimplyBiz makes money from product providers, too, so profits from both the ‘demand’ and ‘supply’ side. Joint chief executive Neil Stevens revealed during our results call that lending volumes through the company’s mortgage club, the third largest in the UK, surged by a fifth to £6.1bn in the first half, driving up revenues earned by 18 per cent to £3.1m. A buoyant remortgage market (25 per cent of lending volumes), and product innovation by lenders in the later life market were key drivers. Moreover, the current run-rate of activity suggests that second-half revenues here could top £3.6m. The events and seminars SimplyBiz runs on behalf of product providers was another standout performer, with income earned from these marketing service agreements increasing by a fifth to £3m, albeit there was a first-half weighting. Nonetheless, finance director Gareth Hague still expects upwards of 10 per cent growth for the full year.
The bottom line is that the cash-rich company looks well on course to deliver adjusted EPS of 10.5p and a dividend per share of 2.6p this year, rising to 12.9p and 4.3p, respectively, in 2019 and 15p and 5p in 2020 as I outlined in my July Alpha Report. Recycling cash generation into bolt-on acquisitions should further augment stellar organic earnings growth, while a high recurring revenue stream underpins prospects for healthy shareholder returns as joint chief executive Matt Timmins clearly believes. He purchased 100,000 shares post results. Strong buy.
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