Frenkel Topping Group PLC

Frenkel Topping Group PLC (FEN) is a Manchester, United Kingdom-headquartered specialist asset manager and independent financial adviser, which regards itself as financial social workers and is focused predominantly on the recipients of clinical negligence and personal injury awards. The company provides financial service advice, recommendations and support to vulnerable clients, including pre- and post-settlement financial guidance to clients, and managing the financial and investment requirement of clients throughout the country.

Recent Developments
As part of the strategy of the group to expand its asset management capabilities, the company on 03 June 2019 announced that Tatton Asset Management Limited had been appointed as investment manager to the core and passive products of Ascencia Investment Management, the discretionary fund manager owned by the group.

Financial Highlights (H1 FY 2019, in £m)
 
(Source: Company Filings)

Due to a focus on customer service and positive performance from portfolios, client retention rate remained high at 98%, and recurring revenue was a healthy 78% of total revenue. As new business income grew by 30% over the comparative period in 2018 to £896k, revenue rose by 14% to £4.1 million (HY 2018: £3.6 million). Assets under management were £851 million, reflecting an increase of £72 million or 9% since the year-end, and strong competitive position helped the group in delivering £44 million of new investments mandates. Gross profit rose from £2.06 million in H1 2018 to £2.23 million in the current period. Disciplined cost control and lower investment in marketing and developing talent helped the group to post profit from operations before share based compensation and formal sale process of £0.8 million, doubling from the £0.4 million reported in HY2018, while profit from operations rose to £0.5 million, up from £0.25 million in HY2018, and EBITDA before share based compensation was up by 105% to £905k. Profit before tax rose to around £0.6 millionagainst £0.28 million in the prior year, and profit for the period increased from £0.22 millionin H1 2018 to £0.45 million. Due to a £373,000 increase in working capital because of the new business generation, cash generated from operating activities of £328,000 in the period was lower than the £474,000 generated in H1 2018.

Share Price Commentary

Daily Chart as at 05-September-19, before the market closed (Source: Thomson Reuters)

On 05 September 2019, at the time of writing the report (at 9:15 am GMT, before the market closed), FEN stock was trading at GBX 31.40, up by 1.29 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 40/GBX 20. The company’s stock beta was 0.46, reflecting less volatility as compared to the benchmark index. The outstanding market capitalisation was around £23.10 million, with a dividend yield of 4.16 per cent.

Conclusion
While the group had a high client retention rate and strong asset management business, broader political and economic uncertainty could result in increased costs or operational challenges, affecting the financials of the group. A reduction in the level of AUM can be seen due to activity of competitors or if the pricing proposition of the group becomes uncompetitive.
Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the current price of GBX 31.40 (as on 5th September 2019), while we look for any upcoming catalysts in the near term.

Phoenix Copper Limited

Phoenix Copper Limited (PXC) is a British Virgin Island-headquartered base and precious metal explorer and developer, which is focused on advancing the Empire mine in Idaho, USA. The Empire Mine near Mackay is the flagship project of the group, and it also holds two prospective cobalt properties in Idaho. The Empire Mine has a design capacity of 8,000 tonnes of copper cathode a year and is a brownfield, past producing underground mine, which produces copper, tungsten, zinc, silver and gold. The group undertakes staged exploration on a potential property covering 23.14 square kilometres and is working towards early low-cost heap leach copper production.

Financial Highlights (FY 2018, in $m)
During the year, the group boosted its Measured and Indicated resource from 10.42 million tonnes to 15.17 million tonnes in FY18, helped by the 93 holes added during the period during the 2018 drilling campaign, in addition to 320 already drilled. Against the 2017 global average for copper oxide open pit mines of 0.47%, the company reported a 30% higher grade of copper at 0.61% copper, and within Measured and Indicatedresource, the group had over 10 million tonnes of ore.The company did not report any revenue for the financial year 2018 as well, though exploration and evaluation expenditure rose significantly to $169,863from $3,824 reported in FY 2017. Even as administration expenses rose to $1.34 million from $1.05 millionin FY 2017, lower expenses of placing helped the company to control its loss from operations, which rose from $1.36 million in FY 2017 to $1.65 millionin the current period. Loss for the year was in line with the operating loss, which corresponded to basic loss per share of 5.82 cents,against loss of 8.16 cents in FY 2017. Cash and cash equivalents during the period dropped to $112,964against $1,903,742 reported last year.

Share Price Commentary

Daily Chart as at 05-September-19, before the market closed (Source: Thomson Reuters)

On 05 September 2019, at the time of writing the report (at 11:25 am GMT, before the market closed), PXC stock was trading at GBX 15.50 and remained flat against the previous day closing price. Stock's 52 weeks High and Low is GBX 36.50/GBX 10.06. The company’s stock beta was -0.90, reflecting inverse relation to the benchmark index. The outstanding market capitalisation was around £6.54 million.

Conclusion
The company can face a significant impact on the financials and affect the business assumptions as prices of various commodities the company markets can be subject to significant adverse fluctuations, over which the group does not have any control. An oversupply of commodities into the market, low growth rates in developed economies and continued slowdown in growth in China and other emerging markets can lead to sustained low product prices and/or volatility, as demand for products can be impacted. In the short-term, the company expects to face challenges from macroeconomic and geopolitical uncertainties, not least from the continuing global trade tensions, which has impacted global growth.

Based on the above rationale, we have given an “AVOID" recommendation at the current price of GBX 15.50 (as on 5th September 2019).

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