Key Numbers
Revenue up 72% to £88.5m and PBT up 152% to £27m. Raised £2.8bn in year up 135% (AA IPO was 49% of total). Corporate finance revenue up 91% to £69m and corporate broking, marketing making, and research up 28% to £19m.
Analysis
Beware financial stocks trading on low P/E ratios. Before the GFC, where do you think RBS and its kind (housebuilders, etc.) were trading? 15x? Investors, we are told, were more bullish than ever and expected limitless profitability so something in this region probably does sound right.
Nice story but not true as RBS was trading just under 10x earnings at the high. Investors weren't bullish at all, they were actually fairly pessimistic because they understood that banking is a pretty cyclical business (although I am sure lots of "value investors" were buying the low P/E ratios in banking and housebuilders aggressively). It is also interesting to note that the high for RBS was early 2007, markets are actually very good at predicting the future.
So what does this have to do with Cenkos? The current market cap is £110m with £27m in PBT and £33m in cash. Clearly, very cheap but I think one to steer clear of.
What are we actually buying here though? Let's just be really clear what the key assets here are: a bunch of bankers with decent connections in the industry, some market makers, some research guys, and some office space. The majority of the assets here are biological.
The problem with biological assets is that they have quite a nasty habit of going somewhere else. With only 22 guys in the corporate finance department, this is a pretty slim advantage.
The eternal question for investment bankers (and their owners) has been how much value does the firm create and how much does the banker create? Shareholders here, to a large extent, are getting paid for doing nothing. They don't own anything, they don't contribute capital, and they didn't source the deals. Really all they own is the Cenkos name which, they presume, has some attraction for clients outside of the people who currently dwell under its arches.
My view is that the value of this is overstated, particularly at this price, and this can be seen by how easy it has been for "start-up" corporate finance houses to take share (for example, Zeus was at zero in 2009 and raised north of £1bn this year).
The growth at Cenkos this…
