JTC Group “positive tone” to trading update says Zeus Capital


What’s new: JTC Group (LON:JTC) trading update confirms that full year results on 1 April will show “revenue was “within the range of analyst expectations, with organic growth within the 8-10% company guidance. Adjusted EBITDA was also in line with consensus expectations with a further year-on-year improvement in EBITDA margin.”

In addition the update reveals:

  • New business increased to £14.9m (FY2018: £9.7m);
  • Exequtive Partners acquired in March 2019 has integrated well;
  • Banking facilities have been increased to £150m (previously £100m).

Management’s outlook commentary is positive. Nigel Le Quesne, CEO, observed that all divisions “performed well, with organic growth and EBITDA margin in line with guidance. The Group has continued to focus on client service excellence, investment in winning new business and selective M&A as the key strategic drivers for long-term growth. We have also increased our focus on how we can use technology to improve the business and are excited about the potential we see.”

Zeus view: This update has a positive tone.

New business of £14.9m is higher than we had expected (we expected £12.4m; June 2019: £10.8m; December 2018: £9.7m; June 2018: £9.6m).

We observe that while market forecasts for revenue is within a tight range of under £2.4m (i.e. 2.4%), the range of market forecast EBITDA margin is wider at 30.0% to 32.3% (2018: 30.8%; 1H19: 30.7%). We leave our P&L forecasts for 2019 and 2020 unchanged with an expectation that the EBITDA margin rises to 32.0% (see page 2 for our 1H & 2H forecasts showing the improvement in margin).

The actual EBITDA margin will reflect management’s ongoing investment in the business.

As set out in the update, the £50m increase in JTC’s banking facilities reflects the number of M&A opportunities that are available.

Valuation: JTC, at 425p a share, is trading on a 2019 PER of 20.1x current consensus (20.2x on Zeus forecast) and 17.8x 2020 forecast adj EPS.

Exhibit 3 shows the divergence in valuation between JTC and its peer, Sanne (trading on 25.5x consensus 2019 adj EPS and 22.3x 2020 forecast adj EPS). In our opinion a multiple of 20x is justifiable for stocks, like JTC Group, with prospects of high-quality double-digit revenue and EBITDA growth.

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