Join our community of smart investors

A lowly rated recovery play with near-term catalysts

Demand for hire vehicles shows no sign of abating at a provider of a complete litigation claims process for non-fault motorists involved in road traffic accidents
September 20, 2022
  • Interim pre-tax profit and EPS up 53 per cent to £13.6mn and 9.3p on 42 per cent higher revenue of £68.6mn
  • Cash collections from settled cases rise 20 per cent to £67.9mn
  • Closing net debt of £74.2mn

Demand for hire vehicles shows no sign of abating at Anexo (ANX:114p), a provider of a complete litigation claims process focused on the recovery of credit hire and repair costs for the impecunious non-fault motorist involved in a road traffic accident.

The impact of the Covid-19 pandemic and the Civil Liabilities Act (2022) forced many of Anexo’s rivals to downsize or withdraw from the market, factors that are playing into Anexo’s hands. Also, statistics show that motorcyclists are particularly vulnerable to personal injury in non-fault accidents, so management has been increasing the focus on this segment of the market. In fact, motorcycles are set to account for 80 per cent of the group’s fleet by the year-end, thus driving higher returns from investment given that these claims have similar value as a car claim but require materially less take-on costs.

Anexo’s management is being smart with the fleet, too, delivering 36 per cent higher pre-tax profit of £10.9mn in its credit hire division from a fleet of 1,947 vehicles – 18 per cent smaller than at the end of 2021. The company has also invested in staff to boost claim settlements, which in turn helped deliver 67 per cent higher pre-tax profit of £2.5mn from legal services.

Anexo is also sitting pretty on its investment in emission scandals activity. Following Volkswagen’s £193mn out-of-court settlement for the Therium class action (brought by 91,000 emissions scandal claimants), expect the German carmaker to settle Anexo’s own action against VW (on behalf of 13,000 claimants) before January’s court date. Analysts believe the £135mn market capitalisation company could earn pre-tax profit of £20mn-£25mn (after litigation funding and marketing costs) based on £3,000 to £4,000 per claim. Furthermore, Anexo has already recruited 4,000 claimants for a potentially larger class action against Mercedes Benz, as well as investing in a fast-growing housing disrepair business (50 per cent plus return on capital employed) that more than doubled its pre-tax profit contribution to £2.4mn in the first half of 2022.

The potential for windfall gains is not embedded in analysts’ pre-tax profit estimates of £26.3mn (2022) and £29.7mn (2023), which underpin earnings per share (EPS) estimates of 18.6p and 20.7p. On this basis, the shares are rated on lowly forward price/earnings (PE) ratios of 6.1 (2022) and 5.5 (2023).

Importantly, a settlement with VW would slash Anexo’s forecast year-end net debt of £71.5mn, the group’s level of borrowings and cash collections being an issue with some investors, and is likely to drive a well overdue rerating. Anexo has delivered a better earnings recovery than I had anticipated when I included the shares in my market-beating 2021 Bargain Shares Portfolio, but the holding is showing a 15 per cent paper loss. Recovery buy.

 

Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.

■ Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com at £16.95 each plus postage and packaging. Details of the content can be viewed on www.ypdbooks.com.

Promotion: Subject to stock availability, the books can be purchased for £10 each plus £3.95 postage and packaging, or £20 for both books plus £5.75 postage and packaging.