JTC shows its counter-cyclical side

JTC (JTC) has been engaged in something of an acquisition spree in the lead-up to publication of its half-year numbers. Midway through September, it announced a cash/scrip deal to acquire Missouri-based Segue Partners, a fund services provider. And on results day, the professional services business then announced that it had snapped-up Ballybunion Capital, a boutique asset manager based in Ireland, for a performance-linked sum, again to be met through a combination of cash and JTC shares.

We can’t be sure that the purchases represent a vote of confidence, but half-year figures do point to strengthening trading volumes. Management had anticipated increased work linked to the group’s existing book, but ultimately new business wins were up by a fifth, while cash profits were up by a commensurate margin to £21.9m.

The expansion of the business necessitated a capital raise which brought in £65.9m, while cash borrowings and loan repayments broadly cancelled each other out. Altogether there was £25.5m in investing activities, triple the amount from H2 2020. Nevertheless, capital efficiencies are in evidence, as net operating cash clearly outstripped comparative profits as the group maintained its conversion rate at 108 per cent, a reflection of its front-loaded billing cycle.

JTC certainly isn’t immune to macro impacts, yet the nature of the group’s long-term mandates effectively renders it a counter-cyclical operation, a worthwhile consideration given existing market uncertainties. Indeed, management confirmed that the group had been drawing in new business through the third quarter. JTC has become a billion-pound enterprise over the past 12 months on the back of a 72 per cent rise in the share price, but with the shares trading at 33 times Berenberg’s forward EPS estimate of 24.9p, we think the market is up-to-speed. Hold.

Last IC view: Hold, 493p, 12 Aug 2020