- First-half revenue up 13 per cent to £77.8mn
- Pre-tax profit up 12 per cent to £15.2mn
- Net debt cut 16 per cent to £61.2mn
- Cash collections from settled cases up 14 per cent to £77.4mn
- Analysts have materially upgraded earnings forecasts
- Former finance director returns
Anexo (ANX:66.5p), a credit and legal services provider for motorists, is making strong progress in improving working capital management and cash collection rates to reduce debt on its balance sheet.
Since the start of 2023, net borrowings have been cut by £11.9mn to £61.2mn, buoyed by £15.7mn of net cash flow from operating activities. The number of credit hire cases settled increased by more than 800 to 4,369, although there was a small reduction in the number of new credit hire cases being funded. The average number of vehicles on the road fell 20 per cent as management focused on optimising cash returns to reduce the level of borrowings rather than chasing volumes. That’s because it takes time to collect the debtor book, so debt increases if Anexo chases the market opportunity.
That said, although first-half credit hire revenue fell by a third to £28.8mn due to much lower completed vehicle hires, the board is expecting a “significant improvement in the second-half performance”.
Sensibly, the directors have been directing more resources into the group’s fast-growing housing disrepair business (pre-tax profit increased by 12 per cent to £2.6mn on a healthy 44 per cent profit margin) and emission claims class actions, both of which have a shorter payback period. The first-half results benefited from the previously announced settlement of a group class action against motor group VW. Anexo is also representing more than 12,000 claimants, up from 4,000 at the same stage last year, on a similar-sized class action against Mercedes-Benz. Investment is being funded by an additional £2.8mn provided to the group by certain shareholders and directors.
Reflecting the VW settlement, analyst Nick Spoliar at joint house broker WH Ireland raised his full-year pre-tax profit estimate from £18.1mn to £25.2mn, implying 5 per cent year-on-year growth. On this basis, expect full-year earnings per share (EPS) of 15p, suggesting the shares, at 66.5p, are rated on a price/earnings (PE) ratio of 4.4. WH Ireland pencils in EPS of 15.2p in 2024, too. The shares are also priced at half tangible book value of 131p. Spoliar’s forecast annual payout of 1.8p per share also underpins a 2.7 per cent dividend yield.
So, having rated the shares a recovery buy, at 63.5p, ahead of the interim results (‘Anexo is now oversold and undervalued’, 13 June 2023’), I continue to see potential for earnings multiple expansion and a narrowing of the deep discount to book value. Buy.
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