Anexo Group PLC (LON: ANX) – Continued to offer a dividend and reinstated market guidance.

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.

(Source: Presentation, Company Website)

Growth Prospects and Risk Assessment

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, ANX is actively seeking to expand the operations into new markets to diversify the revenue streams without compromising the focus on high-value customers and prospects. 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’s secure financial position shall enable them to pursue the growth plans for the rest of the year. There is an ample opportunity for long-term growth alongside the VW emission case.

 (Source: Refinitiv, chart created by Kalkine Group)

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. The Group is also exposed to credit and market risks, including impairments and allowances for credit losses. With potential of another round of lockdown, there is a risk to activity level and cash collections as well. 

Industry Outlook Dynamics

As per the publication from the Research and Markets, the market size for the global legal services market is projected to reach around US$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 are around 301,000 credit hire claims annually.

After understanding the industry dynamics, we will analyse some key fundamental and shareholders statistics of Anexo Group Plc.

A Glimpse of Business Segments

(Source: Company Website, chart created by Kalkine Group)

Key Performing Indicators (H1 FY20)

(Source: Company Website)

Trading Update (in respect of H2 FY20 to date, as on 12 November 2020)

• The Company and its controlling shareholders have entered into agreements with DBAY Advisors Limited (leading private equity firm).
• DBAY has acquired a 29% of a minority stake from Alan Sellers (Executive Chairman), Samantha Moss (Managing Director) and Valentina Slater (Sales Director), which is at a price of 150 pence per share.
• From DBAY’s acquisition, it will expand its Credit Hire and Legal Services divisions and create a value for all the shareholders.
• In respect of H2 2020 to date, the Company witnessed a good performance in the Credit Hire Division.
• For FY20, the average number of vehicles on the road is expected to exceed from FY19.
• Despite the COVID-19 pandemic, the Board expects overall cash collections for the financial year 2020 to be ahead of the previous year.
• Moreover, the Board confirmed that it expects H2 FY20 underlying profit before tax (before investment in VW Emissions Case acquisition) to recover strongly from the prior levels (H1 FY20).
• Overall, the Company is currently trading in line with management expectations.

Financial and Operational Highlights (for the six months ended 30 June 2020 (H1 FY20), as on 13 August 2020)

(Source: Company Website)

• In H1 FY20, the Company delivered a strong performance across all key financial metrics and KPIs.
• The revenues were in line with those reported in H1 FY19, reaching £36.6 million which were 0.3% below H1 FY19 (£36.7 million) as both the number of cases funded reduced and the investment in legal staff continued.
• The Company has significant cash headroom after recent fundraising of £7.0 million.
• Led by investment in the VW case acquisition (£0.7 million) and investment in staff to drive settlements and cash receipts, the adjusted operating profit was reduced by £4.0 million.
• ANX proposed the interim dividend per share of 0.5 pence in H1 FY20 (H1 FY19: 1 pence).
• It has also reduced its Net debt balance at 30 June 2020 of £3.8 million (30 June 2019: net debt of £23.4 million).
• Overall, the Board is confident regarding growth trajectory and future opportunities which would ensure positive cash generation in H2 FY20.

Financial Ratios (H1 FY20)

Share Price Performance Analysis

On 15 December 2020 (before the market close, at 10.00 AM GMT), ANX’s shares were trading at GBX 133.00, down by 0.37% from the previous day closing price. Stock 52-week High and Low were 187.99 and GBX 100.00, respectively.

From the technical standpoint, 14-day RSI (40.71), 100-day SMA (130.32), and 100-day EMA (133.13) are currently supporting an upside potential, which means the stock price could increase in the short term.

In the past three months, ANX’s share price has delivered ~4.71% return as compared to the ~11.13% return of FTSE AIM All-Share index, and a ~6.23% return of FTSE All Share Support Services index, which shows that the stock has underperformed the benchmark index and the sector.

In the last five years, Anexo Group Plc share price has delivered around 24% return as compared to the approximately negative 2.55% return of FTSE AIM All-Share index, which shows that the stock has outperformed the index during the last five years.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

Anexo expects to have a strong H2 FY20 performance for the Credit Hire division. The outlook for Legal Services division is also positive. The Company has significant cash headroom after recent fundraising of £7.0 million. The Company is actively seeking to expand the operations into new markets to diversify the revenue streams without compromising the focus on high-value customers and prospects. The Company’s secure financial position shall enable them to pursue the growth plans for the rest of the year. Adjacently, the activity level in the Credit Hire Division continues to be high, while the average number of vehicles on the road for FY20 is expected to surpass the figure for FY19. Overall, the Board is confident of the Group's ability to continue its growth trajectory and looks to the future with considerable optimism as both its core divisions remained operational throughout. Furthermore, the Board expects overall cash collections for FY20 to be ahead of the prior year, despite the impact of the Covid-19 pandemic.

(Source: Presentation, Company Website) 

Considering the growth across various business divisions, robust liquidity and balance sheet position, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Anexo Group at the current price of GBX 133.00 (as on 15 December 2020, before the market close at 10:00 AM GMT), with lower-double digit upside potential based on 15.93x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*The dividend yield is subject to change as per the stock price movement.

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