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JTC: “impressed by growth in new business of 8.5%” says Zeus Capital

What’s new: Ahead of its interims, which are due on Tuesday, 15 September, JTC (LON:JTC) pre-close trading update confirms “interim results will be in line with management expectations”, namely:

  • Medium term guidance remains:

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

­    33% to 38% underlying IFRS 16 EBITDA margin;

­    1.5x to 2.0x Net debt to underlying EBITDA;

­    85% to 90% cash conversion;

  • JTC’s response to Covid-pandemic has “centred on the safety and security of its employees and provision of uninterrupted service to clients“;
  • Acquisition of both Sanne Private Client unit and NES Financial completed; focus on integration and benefiting from NES Financial technology capability;
  • 1H20 new business inflow rose 8.5% yoy to £6.4m (1H19: £5.9m).

Outlook: Nigel Le Quesne, CEO of JTC PLC, said: “Our outlook for the remainder of the year is cautiously positive and we will be concentrating in particular on new business inflows … and the ongoing integrations of the Sanne and NES Financial acquisitions.

“Longer term, we continue to see good ongoing opportunities for organic and inorganic growth in key geographies and service lines.”

Zeus view: We are reassured to see JTC has been able to provide “uninterrupted service to clients”. We are impressed by growth in new business of 8.5%.

With maintained medium-term guidance, we leave our forecast revenues and earnings unchanged. We have updated our EBITDA to be on IFRS16.

We expect interims to provide a detailed update on the trading in the recent acquisitions, which will facilitate forecasts for 2021.

Valuation: JTC, at 481p a share, is trading on 20.0x Zeus forecast for 2020 adj EPS of 24.1p (Bloomberg consensus of 24.2p).

Bloomberg consensus implies 16.5% earnings growth in 2021, which includes the benefit of acquisitions. 

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 because they have predictable revenues and highly defensive business models.

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