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JTC Plc “acquisition is a perfect fit” says Zeus Capital

What’s new: JTC Plc (LON:JTC) has agreed to acquire the assets, contracts and employees of SANNE Group’s Jersey based private client business (2019 revenue: c £5.3m) for a maximum of £12m paid in cash on completion.  

SANNE’s private client business was established in 1988 and has “a strong reputation for the expertise of its staff and the quality of service delivery”. The consideration is variable based on the satisfactory migration of clients to JTC.

JTC expects “integration to be relatively swift” post regulatory approvals.

Zeus view: This acquisition is a perfect fit for JTC Private Client Services division.

Confident in regulatory approval in 3Q20, we have added £2.2m or 2.2% to our 2020 forecast revenue and 0.3p or 1.4% to our forecast 2020 adj EPS (see Exhibit 1 on page 2 for details). The deal should further enhance 2021 revenues and profits.

We estimate that post-completion JTC’s net debt rises to c£68m (see Exhibit 1), increasing Net Debt to EBITDA to 2.0x before falling to 1.5x by the end of 2020.

On 1 April we expect JTC’s 2019 results to provide a sound basis for setting out expectations for 2021 and confirm:

  • 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.

Valuation: JTC, at 406p a share, is trading on 19.2x current consensus adj EPS (19.3x Zeus forecast), 17.0x consensus 2020 adj EPS and 16.9x on Zeus’ new 2020 forecast including the acquisition of SANNE Jersey Private Clients business.

Exhibit 3 shows the divergence (and recent convergence) in valuation of JTC and its peer, SANNE (trading on 20x consensus 2019 adj EPS and 18x 2020 forecast adj EPS; SANNE reports 2019 results on Thursday).

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.

Nigel Le Quesne, Founder and CEO of JTC, said: “We are delighted to welcome SANNE’s private client team and clients to JTC. … we look forward to using our extensive acquisition experience to ensure a positive and seamless transition for both clients and new colleagues.” 

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