INTERVIEW: Xafinity Plc An Attractive stock say Zeus Capital

Xafinity Plc (LON:XAF) is the topic of conversation when Robin Savage, research director at Zeus Capital caught up with DirectorsTalk. Robin explains what the company does, the main points for investors to consider and his thoughts on the current share price.

Highlights

· Revenue for FY17 of £52.04m a 1% increase compared with the prior year (2016: £51.77m)

· Adjusted EBITDA* grew by 5% to £17.46m (2016: £16.70m) representing a margin of 33.5%

· The loss after tax for the year was £12.8m (2016: profit £3.0m) driven by a number of IPO related costs

· Basic earnings per share of -12.5p after exceptional items including IPO costs (2016: 3.1p)

· Adjusted Basic Earnings per share** of 8.1p an increase of 4% from the prior year (2016: 7.8p)

· Strengthened balance sheet with net assets of £28.9m as at 31 March 2017, compared to net liabilities of £21.3m as at 31 March 2016, with the increase in net assets largely driven by the net impact of the IPO proceeds

· Net debt at 31 March 2017 of £28m (1.6x Adjusted EBITDA leverage)

· Final dividend of 0.73p per share proposed by the Board, which covers the period from IPO (16 February 2017) to 31 March 2017

· Performance since 31 March 2017 has remained in line with the Board’s expectations

* (Adjusted EBITDA represents earnings before interest, tax, depreciation and amortisation, share based payment costs and exceptional costs. See note 5)

** (Adjusted Basic Earnings per share is calculated using profit after tax but before amortisation of acquired intangible assets, share based payment costs, exceptional costs, and an estimate of the tax effect of those items. See note 5)

Successful IPO

· Successful IPO of Xafinity on London Main Market in February 2017

· Offer price of 139p per ordinary share was fully subscribed by a shareholder base of longer-term investors

· Proceeds of £50m raised for the Company used to repay existing debt facilities, resulting in a reduction of debt from £86m to £33m immediately following the Offer

Progress made on strategic objectives

· Growth through expanding services: National Pension Trust (“NPT”) and trivial commutation are two recently added services that gathered momentum over the year. NPT assets under management grew by approximately 67% and Xafinity was awarded a trivial commutation mandate on a FTSE30 client with an £11bn scheme

· Growth through increasing client base: awarded 8 new long-term contracts

· Growth through technology: Radar, Xafinity’s proprietary pensions modelling software was developed during the year and will be rolled out to clients over the coming year

Ben Bramhall, Co-CEO of Xafinity Plc, commented: “The challenges facing defined benefit (“DB”) schemes are widespread and are now frequently making headlines in the UK media. There are more than 6,000 UK DB schemes with aggregate liabilities of approximately £2.0 trillion and there is growing pressure on trustees and sponsors to address pension issues. This is likely to drive increased demand for de-risking services across the industry.

“Xafinity has invested heavily in its de-risking capabilities and is extremely well placed to help trustees and sponsors address these challenges. As a result, we believe there is the opportunity for real growth in Xafinity’s core markets as well as the potential to gain market share.”

Paul Cuff, Co-CEO of Xafinity, commented: “We are also investing in our people and technology to bring insight to trustees and sponsors and help them achieve better outcomes. This, together with building relationships with the Independent Trustee community, has generated some fantastic new client wins and we have some real momentum in this area.”

“The defined contribution (“DC”) market also offers some really exciting growth opportunities. Of the £380 billion invested in UK DC Schemes, only around 5% is invested in Master Trusts which we see as an excellent solution in the new world of Freedom and Choice. Xafinity’s NPT is one of only three Master Trusts which hold the Retirement Quality Mark and the Directors believe that NPT is well positioned to achieve significant growth in the coming years as demand for high quality cost effective de-cumulation vehicles increases.”

Tom Cross Brown, Chairman, commented: “The Group’s performance since 31 March 2017 has remained in line with the Board’s expectations and, notwithstanding the prevailing macroeconomic uncertainties, we believe Xafinity’s core markets and pipeline of business opportunities continue to offer the potential for real growth. Management remains focused on implementing the strategy for market penetration and organic revenue growth across the pensions business, resulting in a healthy momentum of new client wins and commissioning of de-risking projects, and the Board remains confident about the future prospects of the Group.”

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