JTC Group “market leading EBT platform” says Zeus Capital

Risk Management

JTC Group plc (LON:JTC) has agreed to acquire RBC CEES Limited, the market leading employee benefits platform,  for £20m cash subject to regulatory approval expected in early 2Q 2021. CEES has the following characteristics:

  • Revenue of £23.5m for year to 31 October 2019 (c £22m this year);
  • 180 employees with offices in Jersey, Guernsey, London, Edinburgh;
  • Over 430 corporate clients with 890 plans including Employee Benefit Trust schemes and collectively £11bn of assets under administration;
  • ROIC in year 1 to be above 10% and to grow strongly

Outlook: Nigel Le Quesne said: “CEES is an established leader in the employee benefits market with a blue-chip client base and excellent people. The fit with our ICS Division offering is exceptional and … its core service offering is so closely aligned with JTC’s strong shared ownership culture … demand for employee ownership solutions is growing globally and as well as achieving enhanced financial performance over the medium term once integrated onto the JTC platform, we see medium and long-term opportunities for good organic growth.”

Zeus view: CEES is materially enhancing deal, once it’s fully integrated and operating at JTC margins and growth. In 2022 and 2023, we expect CEES to contribute £25m and £27m to group revenue, circa £5m and £8m to Group EBITDA and around 3.0p and 5.0p respectively to adj EPS (i.e 10% enhancing to yesterday’s consensus expectation for 2022 of 29.4p).

As this acquisition is expected to complete in 2Q21, we maintain our 2020 forecasts and raise our 2021 adj EPS by 1.3p to 27.8p (we had expected 10% growth to 26.5p; Bloomberg consensus yesterday was 26.5p).

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JTC has experience integrating business units acquired from international banks. We expect material savings from property, IT and other central services; under JTC’s ownership we expect revenue per capita to rise materially.

CEES is “complementary” to other JTC Corporate and Trustee Services business units and it will enhance JTC’s capabilities. We see CEES as strategically important.

Valuation: JTC Group, at 534p a share, is trading on 5.7x current year consensus revenue (an EV/revenue multiple of 6.5x). The acquisition of CEES for under 1x revenue has the potential to be materially enhancing.

At 534p JTC is trading on 20x consensus adj EPS for 2021. We expect CEES to increase consensus expectations for 2021 by c. 5% and 2022 by c.10%. CEES may be “the gift that keeps on giving”, as it provides JTC many strategic benefits.

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