I turned buyer of the Aim-traded shares of Jarvis Securities (JIM:466p), a financial services outsourcer and retail client stockbroker, at around the current price last summer, since when the board has paid out total dividends of 26p a share (‘Jarvis offers medium-term value’, 15 August 2018). Financial results for the first half to 30 June 2019 only add to my enthusiasm.
Jarvis has two business units: a corporate division, which provides outsourced and partnered financial administration services to a number of third-party organisations, including pension funds and wealth managers, and has cash under administration in excess of £150m, all of which is placed on short-term deposit with triple-A-rated banks; and a broking operation that has more than 100,000 retail clients who use its ShareDeal-Active and X-O low-cost online share trading services.
In the latest six month trading period, the company increased pre-tax profit by 15 per cent to £2.4m on revenues up 9 per cent to £5.2m, a performance that reflects the impact of restructuring its commercial fee tariffs to take into account the additional £500,000 of costs incurred as a consequence of implementing the new Markets in Financial Instruments Directive (Mifid II), which held back first-half performance in 2018. The result was even more impressive given ongoing UK political and economic uncertainty has subdued market volumes.
Bearing this in mind, chairman Andrew Grant rightly points out that “while I anticipate [market] volumes to remain at the lower end of the spectrum near term, these conditions cannot prevail indefinitely and once they return to a more normal level we are well positioned to capture financial benefits”. Another positive is that the company’s cash position has improved by 14 per cent to £6.1m, a sum worth 56p a share, highlighting the first-half net cash inflow of £2.3m from operating activities that enabled the board to pay out £1.4m of cash dividends and repurchase £227,000 of shares which are held in Treasury. Also, first-half pre-tax profits cover more than half of house broker WH Ireland’s full-year pre-tax profit estimate of £4.6m, which in itself would be a record, to produce earnings per share (EPS) of 34.2p.
Analyst Nick Spoliar at WH Ireland is pencilling in a 4 per cent rise in the annual dividend per share to 25.5p, but this could be erring on the light side. That’s because the board hiked the payout, which is paid quarterly, by 11 per cent to 12.5p a share in the first half of 2019, so even if it only holds the second-half payment at 13.5p a share, the total would be 26p a share. On this basis, the shares offer an attractive 12-month rolling dividend yield of 5.6 per cent. They are also priced on a modest cash-adjusted price/earnings (PE) ratio of 12, hardly a punchy rating for a business that is generating an annualised post-tax return on equity of almost 60 per cent, is pursuing a progressive dividend policy, and is on course to produce record profits this year even in more challenging market conditions. Add to that a market leading dividend yield, and I reiterate the positive stance I outlined at the time of the 2018 annual results (‘Alpha alert for financial gains’, 18 March 2019). Buy.
■ Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. The books are being sold through no other source and are priced at £16.95 each plus postage and packaging of £2.95, or £3.75 if you purchase both books. Details of the content of both books can be viewed on www.ypdbooks.com.
