Stock In Focus: Is Anexo Group The Next Burford Capital?

12th Nov '19 by Roland Head

16 comments 3334 reads

Unfortunately I’m not able to make it to Mello this week, but I did attend the Mello event in May. One of the more intriguing presentations I saw was from credit hire and legal services firm Anexo Group (LON: ANX).

This AIM-listed firm only floated in June 2018, but was pointed out to me by a very experienced investor, who noted that it had a vast backlog of trade receivables and was - potentially - undervalued.

Mello is a great place to meet up with investors who are smarter than you are and to learn from them. So I attended the Anexo presentation at Mello to find out more. It was an odd experience. The presentation itself was clear enough. But I was one of several investors in the room who couldn’t understand how such a bizarre business model could ever be so successful.

I’ll come back to the group’s business model in a moment. But first I should point out that Anexo shares have done pretty well since last year’s IPO, delivering a tidy 70% gain to date:

CctK2pw1ISeM5TarpoeaIt_nogTv0qzEuheIENvV

Perhaps I was wrong to be sceptical? Could this business be a mini-Burford Capital in the making?

Happily, I’ve now got the perfect opportunity to find out more, as Anexo Group has qualified for my Stock in Focus screen. So this week I’m going to take a closer look and decide whether to add the shares to the SIF folio.

(For newer subscribers - welcome. The SIF Folio is a Stockopedia fantasy fund which I also mirror with my own cash in a real money account. At present, the Fantasy Fund system is only available on the old version of the Stocko website.)

What does Anexo do?

Anexo is a legal services and credit hire firm that provides replacement vehicles to non-fault motorists who are classified as impecunious. The company previously operated under the name Direct Accident Management, but has now rebranded as Edge. It also has a legal business, Bond Turner.

The non-fault element is important so that Anexo can claim hire costs back from the at-fault party’s insurer. Recovery of credit hire and repair costs for Edge is handled by Bond Turner, which also handles personal injury cases.

Unlike some rivals, Anexo doesn’t take referrals from…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Nothingventured

12th Nov '19

I agree - best avoided. Exploiting the insurance system to hire out cars at crazy rates seems to be an unsustainable business model. Sooner or later the Government or insurance companies will put a stop to it.

Jim

Vader

Thank you for the analysis of this quite fascinating business model.

For those of us who don't have the skills or time to do the analysis, it's reassuring to know we can still short cut to the Stockopedia's ranks & scores.

Snoo

Interesting company.

Some of those figures are quite eye-watering. Having had an car accident in the past, I can't say my experience tallies with what they say, this didn't affect no-claims but it did affect the premium for the next year, but then the same thing would have happened on Anexo.

I didn't get a like-for-like car, but then again the same thing surely would also be possible with Anexo unless they keep a multiple models of every car on the market. Car was also delivered and picked up door-to-door.

The hire period is long, but for those clients whose car is written off there may be a long delay before compensation is reached due to the insurers arguing it out.

It does seem quite odd that insurers would agree to use Anexo's service (the cost of which must surely be known up-front) and then refuse to pay when the bill comes in.... is that standard practice for the industry?

Business model seems precarious to me. What would happen if an insurance company simply got together with a hire car company and negotiated a bulk rate? Some sort of capping of costs would reduce insurance premiums for all, it is a hugely inefficient market.

Not a bad deal for the husband and wife team who own 70% of shares and may pull the best part of £1m in remuneration a year.... not convinced smaller shareholders will be the same.

Frap

Would this be a good stock to short?

Damian Cannon

Very good summary of Anexo's "charms" thanks Roland. I too saw management present back in May and was thoroughly unimpressed. One reason for this was the company's prodigious appetite for cash with no sign of this abating. The other was their whole business model of hugely over-charging for hire cars in the sure knowledge that they'd settle for about half of this without needing to take the insurance company to court.

Frankly the whole thing stinks and I expect the business to fold at some point in the future when it can no longer pay its bills. However I certainly wouldn't short this share until their back really is against the wall - and maybe not even then given the potential for a short squeeze.

Old ManFit

I had a look but there isn't enough liquidity to get a short on it for me.

RDHOWARTH

Nice work, and a husband and wife team at the top too......

Atomic Investor

This ruse may become less popular after many Daily newspapers (2 days ago) issued warnings for people not to use schemes like as. This was after a motorist was landed with a £400,000 bill for car hire after a judge found that the accident was her fault.

Roger Lawson

I have seen Anexo present and it's certainly an interesting business model but I came to the conclusion that it was too vulnerable to regulatory risk and insurers taking steps to undermine them in some way.

phoenixnight

Roland

I saw Anexo present at the recent Sharesoc event in Manchester. As others have commented, I think you're right to be sceptical. (I have some experience in the sector. )

Our blended average hire period was around 16-17 days when I was in the industry. Compare that to the 76 days quoted by Anexo. It just seems way out of quilter with my own experience.

Whilst the company is in growth mode as it presently is, it can hide a myriad of ills; the better quality debt tends to collect first, leaving a rump of debt that often proves impossible to collect. The business will carry on consuming cash.

It's a really tough sector to make money in, yet they quote a net profit margin of 20%.

Other things didn't strike true. There is always the threat of further legislation in the background as well. I could go on - but you get the picture. It's not for me - I'm out.

Roland Head

13th Nov '19

Hi Snoo,

Thanks for your comments.

Re. no claims: you're right that with a a non-fault claim your no claims shouldn't be affected. But as I know from personal experience, insurers will suspend your no claims while a disputed claim is in progress. I once had to renew my insurance at a zero no claims rate because of an ongoing claim. The extra premium was then refunded when the claim was settled in my favour. When added to the excess (also refunded) I was out of pocket by about £1,000 for several months.

I don't think insurers agree to use Anexos - it's the claimant who uses Anexos's service. Insurers don't have any choice/involvement - they're on the receiving end of the claim. In a non-fault scenario, motorists don't have to go through their insurer. It's a poorly understood area, I think.

Cheers,
Roland

phoenixnight,

Thanks for sharing your sector knowledge, it's invaluable insight for a generalist investor like me.

I'm pleased you suggest a typical hire period of 16-17 days - that was my thinking too, that about two weeks would be enough for most repairs.

Regards,

Roland

Cairo

I have vast experience of this sector having worked in it for 12 years and counting. I am new to investing and only have a smallish portfolio. However, my previous company, worked with insurers to help reduce the size of the credit hire claims presented by Anexo and the like.

My main points would be:

1. Government intervention will come but could be 2 years or more likely 5 years. Once the new whiplash reforms are in then I think focus will turn to credit hire. Looking at the costs from an objective view point and when compared to the likes of Enterprise; then its easy to understand why the spotlight will fall on the sector.

2. Insurers are getting more and more efficient with “intervention” i.e. the insurer gets the Non-Fault Claimant into a hire car, say, from Enterprise and can then control the cost of hire and hopefully the repairs.

For me, it is a matter of when, not if, this share and the sector falls. The only guaranteed winners of the husband and wife owners.

https://www.lawgazette.co.uk/n...

Credit hire is mentioned here if only to note it needs to be looked at in light of whiplash reforms

14th Nov '19

Hi AngTig, thanks for your insight, it's much appreciated and very helpful.

Good luck with your portfolio.

Thanks,

Hi Roland. Glad I could help a little (if at all). Stockopedia is a great tool and the discussions/commentaries from people like yourself are invaluable to me!

Stock in Focus: Is Anexo Group the next Burford Capital?

What does Anexo do?

Unlock the rest of this article with a 14 day trial

About the Author

Roland Head

16 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...