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JTC Group “delivering organic revenue growth at the top end of its guidance” says Zeus Capital

JTC Group plc (LON:JTC) interims confirm the strength of JTC’s business model and cash conversion, and management has restated its medium-term guidance.

  • Revenue rose 15.2% to £53.7m (1H19: £46.6m), reflecting a combination of strong net organic growth (+10.1%) and growth from acquisitions (+5.1%);
  • LTM organic revenue growth at ICS was 8.9% and PCS was 11.8%;
  • Underlying EBITDA rose 11.2% to £17.9m (1H19: £16.1m) with underlying EBITDA margin falling 1.2pp to 33.3% (1H19: 34.5%);
  • Net debt at period end was 2.0x underlying proforma EBITDA (1H19: 1.9x);
  • Underlying cash conversion was strong at 108% (1H19: 103%);
  • Interim DPS was increased 41.2% to 2.4p (1H19: 1.7p);
  • Management’s medium-term guidance remains unchanged:

­    8% to 10% net organic revenue growth p.a.;

­    33% to 38% underlying IFRS 16 EBITDA margin;

­    up to 2.0x Net debt to underlying EBITDA;

­    85% to 90% cash conversion;

  • JTC recent acquisitions of Sanne Private Client unit and NES Financial JTC are fully integrated but are generating less revenue than previously expected;
  • 1H20 new business new business wins totalled £8.6m, including NESF with ICS division contributing £6.9m with an organic pipeline of £29.3m (1H19: £22.2m) and PCS division contributing £1.7m (1H19: £2.7m) with an organic pipeline of £13.3m (1H19: £11.0m), so total pipeline rose 28.3% to £33.2m.

Outlook: Nigel Le Quesne, CEO of JTC PLC, said: JTC “will continue to focus on the smooth integration of the Sanne private client and NESF businesses while simultaneously working to grow the Group through client service excellent, improving client efficiencies and making even greater use of technology

Zeus view: JTC’s is delivering organic revenue growth at the top end of its guidance of 8% to 10% p.a. and has strong pipeline which bodes well for 2H and 2021. Lower than expected contribution from recent acquisitions lead us to trim our revenue and EBITDA forecasts, but for 2020 we maintain our adj EPS at 24.1p. For 2021 we expect 10% growth to 26.5p (current Bloomberg consensus is 27.9p).

Valuation: JTC Group, at 450p a share, is trading on 18.7x Zeus forecast for 2020 adj EPS of 24.1p (Bloomberg consensus: 24.0p). In our opinion stocks, like JTC, with prospects of high-quality revenue and EBITDA growth deserve to trade on an earnings multiple of 20x, even in difficult markets.

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