Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

Share plc; one week on AIM and the valuation looks even more wacky

Share plc got off to a flying start on AIM with its shares up 18%.

The suggested valuation pre-float looked somewhat wacky (to say the least!) but the current price, relative to peers and with due regard to the current investment climate, surely now looks even more bizarre.

At the current share price of 32.50p the shares are now trading at approximately 30x December 2008 estimated earnings, approximately 27x December 2009 estimates and yield a lowly 0.60%. At the current market capitalization of £52m the value equates to 4.25x top line projected revenue.

The valuation suggests high growth potential yet revenue only grew 10% from 2006 to 2007 (a boom period for share trading) and is only forecast to grow 4% from 2007 to 2008 and 13% from 2008 to 2009.

Main market listed Brewin Dolphin, market cap £248m had turnover for the year ending 30th September 2007 of £198m, indeed boosted by corporate finance revenue, and the shares are currently trading at c8.8x September 2008 estimates and yield 6%. Main market listed Charles Stanley, market cap £100m, had turnover for the year ending March 2007 of £98m, again boosted by corporate finance activity and the shares are trading at 7.6x March 2008 estimates. Even allowing for a big fall in corporate finance revenue and a huge drop in investor confidence Brewin (and to a lesser extent Charles Stanley) still boasts a huge book of discretionary clients and a decent stream of recurring revenue. As at 31st December 2007 Brewin had £11.1 billion discretionary funds out of a total of £21.6 billion and generated investment management fee income for the quarter ended 31st December 2007 of £47.1m out of total income of £52 million.

In the current climate it’s a mystery to me how the entire sector of investment management/stock broker businesses can be so lowly rated relative to a single small AIM quoted stock broker with very similar business dynamics that has such measly growth potential – the inefficiency of the market!

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