Numis in the doldrums

It is hard to think that it was just a year ago when investment banks were furiously ratcheting up bonuses to attract the mergers & acquisitions talent that was serving the biggest boom in London IPOs in a generation. The post-pandemic opening caused a deal rush more energising than many City staff had ever seen. The contrast to now could not be starker as frozen equity capital markets touch decade-long lows. That leaves the likes of mid-rank investment house Numis (NUM) with a considerable headache as to its immediate direction as management tries to find something for its dealmakers to do.

Numis’s problem is also its advantage when the good times roll. A large capacity for deals sitting atop a fixed cost base means the company generates significant levels of operational gearing, which unfortunately went into reverse in these results as revenues fell. This caused the proportionately large 72 per cent drop in pre-tax profits. The biggest segmental drop, unsurprisingly, was in capital markets, where revenues fell by more than 62 per cent as deals dried up. One bright spot was that the choppy backdrop meant fewer bonuses – staff costs fell by 24 per cent to £74.9mn, while fixed administration costs also slackened by 16 per cent. Numis also gained from having most of its assets denominated in dollars as the greenback strengthened significantly against sterling this year. Overall, the cash positions in the company’s portfolio will pull in significantly more interest income.  

Based on previous experience, management reckons the difficult market conditions will continue for some time yet. Numis has a decent offering in this end of the market and the shares, rated on a price/earning ratio 11 times, are not expensive. However, the company will have to wait on its hands for some time yet. Hold.

Last IC View: Hold, 235p, 10 May 2022