JTC subject to questions over integration

JTC (JTC), which acts as an administrator of offshore funds and trusts for wealthy individuals, families and institutions, continues to deliver robust results. It completed a record number of acquisitions in 2021, mostly focused on its institutional division and US expansion.     

Revenues grew in line with the company’s medium-term growth targets. Encouragingly, 9.6 per cent of revenue growth was organic, with the rest attributable to the acquisition of seven businesses over the year. However, markets did not react kindly, with the shares clicking into reverse on the morning of the results. 

The overall underlying cash (Ebitda) margin for the group was down slightly year on year. Its private client services division margin fell from 41 per cent in 2020 to 37 per cent in 2021, while revenues rose by 8.4 per cent. Chief executive Nigel Le Quesne said this was partly down to the costs associated with setting up its largest ever single mandate, which is due to start generating revenue in the autumn.  

The group’s annualised new business wins totalled £20.9mn in 2021, up from £17.9mn in 2020. Almost two-thirds of new business was for its institutional client services division, which had revenue growth of 11.5 per cent for the year and saw its underlying cash margin increase by a couple of percentage points to 30 per cent. 

To fund its expansion, the group has been racking up debt, a net debt/cash profit multiple of 2.34 comparing with 1.96 times in 2020, according to Panmure Gordon. Naturally, elevated debt will be more costly for the firm to service, although it is difficult to imagine this was the reason for the shares’ markdown.  

Cash conversion was within the firm's expectations at 87 per cent, compared with 91 per cent the previous year. JTC’s managers have kept their cash conversion medium-term guidance range of 85 per cent to 90 per cent. 

Management thinks it is on track to double its revenues within the next three to four years and the fact Le Quesne says they proceed with around one out of every 10 acquisitions suggests that there could be scope for further growth, although the integration of acquired assets will probably have more bearing on the investment case, particularly in relation to margins.

Recent purchases Segue, SALI and EFS support its strategic push into the US market where outsourcing is less developed than in the UK and Europe.

Analysts at Panmure Gordon think the imminent delisting of Sanne (SNN) and Intertrust (DE:INTER) are delisted some of the proceeds may be redeployed into JTC given that it is one of the few remaining listed fund administration companies. JTC is richly valued on a 2023 price/earnings ratio of 23.1 times, but its prospects could eventually justify the rating. As if to bear this out, Berenberg has a target price of 945p – well above the current share price – although new business wins could be harder to come by as the securities market appears to be entering a new 'risk-off' phase. Hold. 

Last IC view: Hold, 810p, 21 Sep 2021