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Equiniti weathers tough backdrop

The financial services administration group saw lower levels of ‘corporate action’ in 2019
March 12, 2020

Shares in Equiniti (EQN) tumbled in November after the group warned that adjusted cash profits for 2019 would come in towards the lower end of its £136m-142m guidance. The financial administration services group helps manage ‘corporate actions’ such as IPOs and mergers and said it was seeing lower levels of activity amid the uncertain economic and political environment.

IC TIP: Hold at 156p

In the end, adjusted cash profits reached £136m, a 4.5 per cent constant currency increase on the back of a stable 24.5 per cent margin. With organic revenue growth of 1.4 per cent, this reflects a stepdown from the 3.2 per cent seen in the first half.   

Revenue from ‘investment solutions’ rose 5.1 per cent to £150m, buoyed by customer renewals and wins in the share registration and share plan businesses. But corporate action revenue dropped more than a third to £11.6m. This work enjoys higher margins, so weaker volumes pushed the division’s adjusted cash profit margin down 0.5 percentage points to 33.5 per cent.

The group acquired Wells Fargo’s shareowner services business in 2018, providing a foothold into the US market. Rebranded ‘EQ US’, the separation process was completed last year at a cost of £45m. Revenue reached £94m on the back of 2.7 per cent constant currency organic growth, but lower US interest rates and corporate actions translated to £4m in lost sales.

Equiniti earns interest income on the balances it administers on clients’ behalf and, despite the US rate cut, this came in 17 per cent higher in 2019 at £14.1m. However, with the latest rate cuts in response to coronavirus, it anticipates a hit to interest income in 2020, weighing on organic growth. It has also warned the pandemic could delay companies’ decision making and drive a further decline in corporate actions in the face of market volatility.  

House broker Liberum expects adjusted pre-tax profit of £79.9m and EPS of 16.8p in 2020, rising to £85.6m and 18.1p in 2021.

EQUINITI (EQN)    
ORD PRICE:156pMARKET VALUE:£ 567m
TOUCH:155-156p12-MONTH HIGH:238pLOW: 148p
DIVIDEND YIELD:3.5%PE RATIO:19
NET ASSET VALUE:140p*NET DEBT:66%**
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2015†369-71.7-92.80.68
201638228.59.54.75
2017^40625.33.54.37
201853124.64.85.32
201955639.88.45.49
% change+5+62+75+3
Ex-div:16 Apr   
Payment:26 May   
*Includes intangible assets of £824m or 226p a share, **Includes £41.1m in lease liabilities, †Pre-IPO figures, ^EPS and DPS restated to reflect rights issue