FY12 Results For Share PLC

Through business mix, market share gains and management action, Share plc (LON:SHRE) has limited the 2012 drop in revenue to just 2%, much better than the peers’ 13% drop. Costs were well controlled rising just 0.7%. Statutory profits were adversely affected by one-off restructuring costs. The group remains strongly cash and capital generative, with net cash of £12.2m and the dividend up 19%. Falling deposit rates are encouraging private investors to move away from cash and into equities. Share PLC notes a significant upturn in dealing activity at the start of the year.

Revenue and market share trends
The greatest weakness in 2012 was commissions (down 11% on 2011, H1 down 13%, Edison previous 2012e down 14%, peers down 18%). Given the market uncertainties and noting market volumes reported by the LSE this should not have been a surprise. Account fees were down 1% 2012 on 2011 (H1 down 3%, Edison 2012e flat, peers down 24%) and interest income and other income was up 18% (H1 up 22%, Edison 2012e 26%, peers up 12%), reflecting a 21% rise in client cash balances. While somewhat volatile quarter-on-quarter, Share plc is maintaining its multi-year gain in market share, with Q412 at a record high of 7.23%.

Business pro-actively managed
In a highly dynamic market and regulatory environment, Share management has been actively managing its portfolio. Businesses that are unlikely to be sufficiently profitable have been sold or restructured (such as ShareMark and the third-party funds business of Sharefunds). Share has been equally active in taking acquisition opportunities (eg JPJShare.com) as competitors have been squeezed out by the new conditions. The FSA’s Retail Distribution Review (RDR) will see trail commissions eliminated, but these represent just 4% of Share’s revenue. RDR will create growth opportunities as Share can be very price competitive for investing in funds, and provide guidance to new self-select customers as smaller IFAs leave the market.

Valuation: Upside half
Our absolute valuation approaches indicate a value of c 33p, an upside of nearly a half from the current price. We note that stripping out excess cash reduces the 2013 P/E to c 12.5x. We also note the high operational gearing means that the DCF valuation can move quickly, with a 10% increase in 2014 revenues raising it by over 12p.

Please see the attached chart below.