Anexo Group PLC – Record monthly cash collections during December 2020.

Anexo Group PLC is an FTSE AIM All-Share listed Company, which provides specialist integrated legal and credit hire services related to vehicles replacement and associated legal services to the customers involved in a non-fault accident. Moreover, the diverse range of services includes an 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 under the two main divisions – Legal Services and Credit Hire.

On 27 April 2021, ANX will announce its full-year FY20 results.

(Source: Company Website)

Growth Prospects and Risk Assessment

ANX’s credit hire segment had witnessed tremendous recovery since the lifting of the first lockdown and demonstrated record numbers during H2 FY20. Furthermore, the Company had continued to increase the number of litigators for Bond Turner, which had driven the rising number of case settlements. The Group’s experienced management team has made some necessary strategic changes which have resulted in business growth in a short duration.

(Source: Company Presentation)

ANX had witnessed an increased number of cases against Volkswagen AG. Furthermore, the Group has currently engaged in around 14,356 claims. The Bond Turner’s Leeds office has become fully operational.

However, there are certain risks and uncertainties to business growth like litigation risk, personal data risk, regulatory risk, risk of losing cases, lawyer retention, government actions and legal developments. ANX is also exposed to credit and market risks, including impairments and allowances, for credit losses. Also, the Covid-19 situation may reduce activity levels and cash collections as well.

Industry Outlook Dynamics

According to the latest report from Research and Markets, the total market size for the global legal services market is expected to grow at a CAGR of 2.9%, from USD 713.66 billion in 2020 to USD 734.56 billion in 2021. Furthermore, the market is expected to surge at a CAGR of 5% from 2021 and reach USD 908.17 billion by 2025. Moreover, the industry is forecasted to demonstrate low growth during 2021 due to various operational headwinds caused by the Covid-19 pandemic that resulted in the closure of commercial activities. The North America market had accounted for approximately 56% of the market in 2020, making it the largest market for global legal services.

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

Recent Developments

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 value for all the shareholders.

A Glimpse of Business Segments

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

FY20 Trading Update (in respect of the year ended 31 December 2020, as on 25 January 2021)

• Despite the Covid-19 pandemic, the revenue growth has surpassed the management's expectation.
• The adjusted profit before tax for FY20 will be in line with current market anticipations.
• In the credit hire division, the Company has recovered strongly and exceed the FY20 average number of vehicles on the road from the previous year.
• In Q4 FY20, the Company increased its monthly cash collections and arched a record high in December 2020.
• Further, the Board expects overall cash collections for the financial year 2020 to be ahead of the previous year.
• Anexo expects to have a strong H2 FY20 performance for the Credit Hire division.
• The outlook for the Legal Services division is also positive.
• The Company has appointed Saki Riffner, as a Non-Executive Director, with an immediate effect.

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

(Source: Company Website)

• 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.
• 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).
• The Board is confident regarding growth trajectory and future opportunities, which would ensure positive cash generation in H2 FY20.
• ANX proposed the interim dividend per share of 0.5 pence in H1 FY20 (H1 FY19: 1 pence).
• Anexo Group has a strong foundation in place to grow during uncertain times, which is supported by the hefty investments in the legal service division.
• It has a robust balance sheet after the recent equity infusion and surplus capacity within the existing facilities.
• Overall, the Company delivered a strong performance across all key financial metrics and KPIs.

Financial Ratios

Share Price Performance Analysis

On 23 February 2021 (before the market close, at 9:45 AM GMT), ANX’s shares were trading at GBX 140.00, down by 0.71% from the previous day closing price. Stock 52-week High and Low were 183.16 and GBX 100.00, respectively.

From the technical standpoint, 100-day SMA (132.8), and 100-day EMA (133.8) are currently supporting an upside potential, which means the stock price could increase in the short term.

In the past six months, ANX’s share price has delivered ~6.42% return as compared to the ~25.45% return of FTSE AIM All-Share index, and a ~11.56% 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 31.16% return as compared to approximately 9.58% 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 has delivered resilient business performance during FY20 as it remained operational throughout the year amid Covid-19 lockdowns. Moreover, ANX had achieved FY20 revenue growth well ahead of its expectations. However, the salary and other related costs also surged during FY20 due to the recruitment of high-quality staff. The Company had anticipated its FY20 adjusted profit before tax to meet current market expectations. The implementation of the second lockdown during November 2020 had resulted in a reduced number of vehicles on the road.

Nevertheless, ANX ensured that the number of vehicles on the road during FY20 would be more than that of FY19 levels. Also, ANX had confirmed that monthly cash collections had reached to record levels during December 2020. Overall, the Board remained confident of the Group's tendency to accelerate its growth trajectory with considerable optimism.

Considering the decent revenue growth, growth across various business divisions, increase in the number of litigators, robust liquidity and balance sheet position, adjusted profit before tax will be in line with current market expectations, 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 140.00 (as on 23 February 2021, before the market close at 9:45 AM GMT), with lower-double digit upside potential based on 12.16x Price/NTM Earnings (approx.) on FY21E 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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