JTC benefits from industry rationalisation

Professional services companies have prospered over the past 12 months as asset managers and fund providers have turned to outsiders to deliver many of their middle and back-office functions and streamline their costs.

A combination of poor market conditions, increasingly complex compliance and inflationary staff costs have prompted many firms to reorganise, with a net benefit for JTC (JTC). The results showed the impact of these trends which, combined with the additional benefit of substantial acquisitions made in 2021 which have had a year to bed in, kept margins within the company’s 33-38 per cent target range.   

The greatest beneficiary was the institutional segment of the business, which was where most of the company acquisitions were concentrated over the past two years. The division saw revenues increase by 47 per cent to £137mn, with net organic growth of 14.6 per cent in these results. Chief executive Nigel Le Quesne credits the downturn in markets with a rise in demand for JTC’s services. “In this situation, people tend to rethink their business models and it means we can pick up a lot of outsourced work,” he said.

The private client segment, though considerably smaller, still saw revenue growth of nearly 16 per cent to £63.4mn, with the operating margin slightly crimped by investment in the platform over the past year, while a big business win in 2021 provided a tough comparator.  

Its growth is reflected in broker Numis’s forecasts for EPS of 35.4p this year, giving a price/earnings ratio of 20. Given how much pressure fund managers are under to rationalise costs, there is clearly potential for future expansion. Hold.

Last IC view: Hold, 828p, 13 Sep 2022