K3 Capital Group PLC (LON: K3C)

K3 Capital Group PLC (LON: K3C) is an FTSE AIM All-Share index listed UK professional services firm providing advisory services to SME’s. Moreover, the Group comprises three business divisions: M&A, Tax, and Restructuring. The Company has been listed on LSE since April 2017.

K3C will provide its year ended 31 May 2022 trading statement in June 2022.

Recent trend of Dividend Payments

K3C has a progressive dividend policy and paid an interim dividend of 4.00 pence per share on 04 March 2022, while the ex-dividend date was 17 February 2022. In comparison, the Company had paid an interim dividend of 3.00 pence per share for the prior year.

(Source: LSE website; Analysis done by Kalkine Group)

Growth Prospects

• Diversification of Tax Division: K3C has made accelerated progress regarding the diversification of the Company’s Tax Division. It is now comprised of randd, Knight R&D, InTax, and K3 Tax Advisory.

• Acquisition Benefits: The Group has acquired JE Consulting for an initial consideration of £2.32 million. The acquisition strengthens and expands the company’s K3 Hub. The transaction is also expected to be earnings accretive in its first full year of ownership.

Key Risks 

• UK Services PMI: The UK Services PMI had dropped from 62.6 in March 2022 to 58.9 in April 2022.
• Adverse Covid-19 Impact: The Covid-19 pandemic had caused a temporary reduction and delays in R&D claim processing for its Tax division during H1 FY22.
• Bank of England Warning: The Bank of England had trimmed its economic growth forecast for 2023 and is expected to show a contraction of 0.25% from a previously estimated growth of 1.25%. Moreover, it had also warned of UK inflation reaching around 10% very soon.

Key Fundamental and Shareholders Statistics of K3 Capital Group PLC. 

Premier Asset Management Ltd is the most significant shareholder as it holds nearly 10.27 million shares.

Financial Highlights (for H1 FY22 ending 30 November 2021, as of 07 February 2022)

(Source: Company Website)

• Revenue Growth: Group revenue increased to £31.2 million in H1 FY22, compared to revenue of £18.0 million in H1 FY21, with decent traction in organic growth.
• Cash Position: The Company ended the period with a net cash position of £8.8 million as of 30 November 2021.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 17 May 2022 at 09:24 AM GMT+1, K3C’s shares were trading at GBX 224.25, down by around 0.33% from the previous day closing price. Stock 52-week High and Low were GBX 395.00 and GBX 205.00, respectively.

On a daily chart, the stock price is sustained between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-days RSI of ~30.71 approaches an oversold territory.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative) 

Business Outlook

The Company has shown excellent organic growth, launched new services lines, completed the acquisition of Knight businesses, continued investment in people, and delivered market expectations successfully during H1 FY22. Adjacently, K3C expects the acquisition of Knight Corporate Finance and Knight R&D to be immediately earnings enhancing and represent a complementary extension to the Group's M&A and Tax Divisions. In a nutshell, K3C remained confident in the outlook as it had demonstrated strong levels of activity in all its three business divisions.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the strong outlook, acquisition benefits, solid dividend growth, decent profitability margins, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on K3 Capital Group PLC at the current market price of GBX 224.25 (as of 17 May 2022 at 09:24 AM GMT+1), with lower-double digit upside potential based on 13.46x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.  

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.