Anexo Group PLC (LON: ANX): Well-Positioned to Pursue the Growth Opportunities

Anexo Group PLC is a FTSE AIM All-Share listed Company, which provides specialist integrated legal and credit hire services. It focusses on vehicles replacement and associated legal services to the customers involved in a non-fault accident. The services include upfront settlement of recovery and repair charges, recovery of costs, processing of personal injury claims, and credit hire vehicle. Overall, the Company bifurcates the operations into four business units which are segregated under the two main divisions – Legal Services and Credit Hire. The Company was incepted in 1996 by Alan Sellers as standalone credit hire business, which relied on law firms to settle claims from insurers. Presently, the Company leverages the in-house litigators to recover charges for hire and repair from the insurers of a motorist at fault. At the end of FY19, the Group had 1,868 of available fleet size.

On 22^nd July 2020, the Company is expected to hold the annual general meeting.

 
(Source: Presentation, Company Website)

Key Fundamental Statistics



Segment Analysis

The Company has two business division – Credit Hire Division (CHD) and the Legal Service Division (LSD).

Credit Hire Division: The CHD division was established in 1996 to provide an integrated solution for the non-fault motorist. It comprises three business units, namely DAMS, McAMS, and CAMS, for catering to the car and light vehicles, motorcycles, and bicycles, respectively.

Legal Service Division: It consists of the division of Bond Turner, which employs paralegals and solicitors to facilitate the claim work.


(Source: Annual Report, Company Website)

Operational Key Performing Indicators

During the financial year 2019, the Company has delivered significant improvement across various financial and operational parameters. There was an increase in the number of claims instigated despite the reduction in the cash consumption. The Company is projecting to grow further as the case portfolio initiated by the new recruits matures.


(Source: Annual Report, Company Website)

Top Shareholders Statistics

 

Financial Highlights: Increased Capacity for Strong Cash Generation in the Financial Year 2019 (31^st December 2019)


(Source: Annual Report, Company Website)
 
For the financial year ending 31^st December 2019, driven by an increase in revenue from Credit Hire and Legal Services businesses for the period, the revenue increased by 39% to GBP 78.5 million (FY 2018: GBP 56.5 million). The gross profit stood at GBP 62.8 million in FY2019 (FY 2018: GBP 40.3 million), reflecting a decline in cost of sales. The adjusted operating profit (before exceptional items) surged by 47% to GBP 25.2 million in FY2019 (FY 2018: GBP 17.2 million), adjusted operating profit margin stood at 32.2% for the period.
 
The reported operating profit increased by 60% to GBP 24.6 million in the financial year 2019 (FY 2018: GBP 15.4 million). The adjusted PBT (profit before tax) stood at GBP 23.1 million in FY2019, reflecting an increase of 43% for the period (FY2018: GBP 16.1 million). The reported PBT (profit before tax) stood at GBP 22.4 million in the financial year 2019, reflecting an increase of 57% (FY2018: GBP 14.3 million).
 
The reported Profit for the period attributable to shareholders stood at GBP 17.9 million in the financial year 2019 (FY2018: GBP 11.4 million). The adjusted basic earnings per share stood at 17 pence in FY2019 (FY 2018: 12 pence).  The Group proposed a final dividend of 0.5 pence taking the total dividend to 1.5 pence in FY2019 (FY 2018: 1.5 pence).
 
The net assets increased by 21% to GBP 91.7 million in FY2019 (FY2018: GBP 75.8 million). The Group managed to reduce operating cash outflows to GBP 0.8 million in the financial year 2019 (FY2018: GBP 7.9 million). The net debt as on 31^st December 2019 stood at GBP 27.7 million (GBP 17.3 million as on 31^st December 2018).
 
Financial Ratios – Strong Profitability Margins versus H1 FY2018 Data 
 
 

Reported profitability metrics for the first half of the financial year 2019 were higher against the last year data for the same period, reflecting higher revenue generated and better control over expenses. Anexo Group Plc has delivered a substantial return for the shareholders’ as Return on equity of 10.6% was higher as compared to the ROE for H1 FY2018 period. On the liquidity front, Anexo Plc’s current ratio was lower than the current ratio for H1 FY2018 of 4.60 but has sufficient liquidity to meet short-term obligations as shown strong financial growth trajectory in FY2019 period. On leverage front, the debt-equity ratio was 0.41x, which was higher as compared to last year data for the same period.

Share Price Performance Analysis

Daily Chart as on 30^th June 2020, before the market close (Source: Refinitiv, Thomson Reuters)

On June 30, 2020, at the time of writing (before the market close, at 8:26 AM GMT+1), Anexo Group Plc shares were trading at GBX 140.20, down by 1.27 per cent against the previous day closing price. Stock 52 week High and Low were GBX 200.00 and GBX 100.00, respectively.

Bullish Technical Indicators

From the technical standpoint, the shares were trading well above the short-term support level of 15-day, 20-day and 25-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology

Price/Earnings Approach (NTM)

 

To compare Anexo Group Plc with peers, Price/Earnings multiple has been used. The peers are Tribal Group Plc (NTM Price/Earnings was 15.03), Quixant Plc(NTM Price/Earnings was 9.04), Aspire Global Plc (NTM Price/Earnings was 8.25), Dignity Plc (NTM Price/Earnings was 6.37) and Brighton Pier Group Plc (NTM Price/Earnings was 5.05). The Average of Price/Earnings (NTM) of the company’s peers was 8.75x (approx.).

Anexo Group PlcVs FTSE AIM 100 Index (5 Years)


(Source: Refinitiv, Thomson Reuters)

In the last five years, Anexo Group Plc share price has delivered 30.42% returns as compared to negative 21.38% returns of FTSE-AIM 100 index, which shows that the stock has outperformed the index during the last five years.

Industry Outlook Dynamics

As per the publication (September 2019) from the Research and Markets, the market size for the global legal services market is projected to reach around USD 1,045.24 billion by 2025, representing a compounded annual growth rate of 4.1 per cent over the forecasted period between 2019 to 2025. Within vehicle litigation category, the increasing number of events holds the potential for the considerable market to address. As per the Competition and Market Authority (CMA), there is around 301,000 credit hire claims annually.

Growth Prospects and Risk Assessment

The Company has been focussed on services and customer support, which has resulted in a higher level of customer satisfaction. The Group’s experienced management team has made some necessary strategic changes which have resulted in business growth in the short duration. The Company actively seeking to expand the operations into new markets to diversify the revenue streams without compromising the focus on high-value customers and prospects. In the financial year 2019.The Group has made an increase in investment in a number ofsenior fee earners to 127 in FY2019 from 109 in H1 FY2019 and 89 in FY2018. 
 

 
(Source: Presentation, Company Website)

However, the Company’s performance and profitability can be affected by the following risks: potential reduction in fee income; government action to decrease the damage recovery; heavy reliance on lawyers; losing claims; and high litigation cost.

Business Outlook Scenario

The Anexo Group PLC provides a unique customer proposition by providing a complete solution for the litigated claims process. It maintains four depots, which covers the entire Wales and England. It has a sizeable fleet size with established geographic presence. Moreover, the business growth is also underpinned by the synergy between the two business divisions as 95 per cent of cases in Bond Turner division were referred from EDGE (Credit Hire Division). Moreover, the Company has remarkably improved cash collection during the FY19 and continued the momentum during the first four months of FY20. The Company’s secure financial position shall enable them to pursue the growth plans for the rest of the year. There is an ample opportunity for the long-term growth alongside the VW emission case. The Company’s investment in the latter should be complemented by the built-up fleet size and additional capacity in the legal service division.

The Company has shown significant improvement in financial performance in the financial year 2019. Both the top-line and the bottom-line performance have increased for the period, with an improvement in the profitability. The revenue from the Group’s core operations has increased for the period. ANX has managed to reduce net cash outflow from operating activities significantly, while the net debt for the period has increased. The Company exhibited strong control over costs and reported growth in adjusted operating profit.

The Group witnessed an increase in the claims instigated to 3,597 in the second half of FY2019 from 3,392 in the first half of the financial year 2019. The number of cases settled also increased to 2,872 in the second half of FY2019 from 2,066 in the first half of H1 FY2019 and expect case portfolio to grow further in FY2020 as new recruitments mature. The Group operations are impacted by the covid-19 outbreak and have taken steps to tackle the uncertain situation. The company has a decent liquidity position, and its business divisions remained fully operational during uncertain times with good resistance. The Board is confident to increase capacity organically, driven by business resilience and solid financial position and is well-positioned to deliver growth in the near-term.

Over the course of 4 years (FY15 – FY19), the company’s revenue surged from  GBP 36.92 million in FY15 to GBP 78.51 million in FY2019. Compounded annual growth rate (CAGR) stood at 20.76 per cent.

Based on the decent growth prospects and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation at the current market price of GBX 140.20 (as on 30^th June 2020, before the market close at 8.26 AM GMT+1), with lower double-digit upside potential based on 8.75x Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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