Share Plc Interim Results

Falling market volumes and continued regulatory charges make Share plc’s core business challenging. Its business mix is less sensitive to trading commissions than many peers but trading is important. It has met this challenge through a combination of diversifying product ranges, acquiring an additional portfolio of customers and managing costs. Despite these actions the underlying EPS fell from 0.6p to 0.4p and we have reduced our 2012 earnings from 1.16p to 0.86p. A return of investor confidence in the market would quickly reverse these cuts.

Market volumes a drag
There has been plenty of pre-published market data (including LSE monthly statistics) and competitor comment (eg Brewin Dolphin IMS last week) making it clear that the core business of personal share dealing has faced challenging market conditions. It should be no surprise, and built into market expectations, that trading commissions would fall (actual drop 14% H112 on H111). Given ongoing market uncertainty, we believe it would be prudent to expect this to continue and accordingly we have reduced our FY12 revenue estimates from £15.4m to £14.1m.

Business mix less dependent than peers
Compared with the companies in its peer group, Share plc is less dependent on trading commissions and more dependent on account fees (more sensitive to market levels) and interest income. This mix has provided some relative protection against the drop in market trading volumes.

Management action
Management has also taken action to face the challenges including acquiring JPJShare.com customer base of 5,000 clients a 2% increase in group numbers. This was announced on 22 June so had little impact on H1 numbers. Share plc has continued its multi-year market share gains (from 6.12% in H111 to 6.56% in H112) and broadened its service product range. Additionally costs have been well controlled.

Valuation: Upside over a third
Our absolute valuation approaches indicate a value of c 34p, an upside of over a third from the current price. We note that stripping out excess cash reduces the P/E to c 19x. 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 10p.

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