- Share price down a third since May annual results
- VW settlement well below initial market estimates
- Priced on 49 per cent discount to net tangible asset value
- 2023 price/earnings (PE) ratio of 5.4
Shares in Anexo (ANX:63.5p), a credit and legal services provider for motorists, have come under pressure after the group lowered profit guidance last month following the decision to rein in new case acquisitions and focus on improving working capital management and cash collection rates.
The silver lining was Anexo’s vehicle emissions claim against VW Group (on behalf of 12,000 claimants) which had scope to earn the group £20mn profit after litigation funding and marketing costs based on £3,000 to £4,000 per claim. However, Anexo has settled out of court and, although it is unable to reveal the financial settlement due to confidentially clauses, investors have been completely underwhelmed to discover that it only resulted in a “net positive cash position of £7.2mn to Anexo”. That’s £600 per claimant. Investors will now be revising down their expectations for a likely payout from a similar-sized class action against Mercedes-Benz.
Anexo now has pro-forma net debt of £52.4mn, excluding lease liabilities of £13.6mn, so gearing is less than half of net asset value of £146mn (124p). Borrowings are used to help fund £222mn of receivables, mainly for the credit hire business. The issue is that it takes time to collect the debtor book, so debt increases if Anexo chases the market opportunity. That’s not aligned with the board’s desire to reduce borrowings, and explains why the credit hire business is now being run for cash. Also, Anexo can make higher returns with a shorter payback from its fast-growing housing disrepair business (50 per cent pre-tax profit margin) and from emission claims despite the lower than expected settlement from VW.
That said, the shares are now trading on a miserly 5.4 times 2023 earnings estimates (excluding the undisclosed contribution from the VW case) and almost 50 per cent below tangible book value of 124p, a rating that more than takes account of last month’s earnings downgrade and the lower than expected VW settlement. Also, the valuation ignores the possibility of pre-tax profit bouncing back to £23.8mn in 2024, the same level as last year, as analysts at WH Ireland anticipate.
On this basis, the prospective price/earnings (PE) ratio falls to 4.2, a rating that strongly suggests bottom fishers will be rewarded. From a technical perspective, the shares are massively oversold, too, with the 14-day relative strength index (RSI) well below 10. Recovery buy.
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