Equiniti shares plunge as results disappoint
Equiniti Group
179.80p
16:55 09/12/21
Services and payments specialist Equiniti Group reported a 30.7% jump in revenue in its full-year results on Tuesday, to £530.9m, while its underlying EBITDA rose 24.5% to £122.3m - although analysts were pointing out that it wasn't quite the rosiest picture compared to their expectations, as the firm's shares plunged.
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The FTSE 250 company said its underlying EBITDA margin for the 12 months ended 31 December was 23%, which was down 1.2 percentage points year-on-year, while its operating cash flow conversion improved by nine percentage points to 102%.
Underlying earnings before interest and tax stood at £39.9m for the year, up 7.8%, while profit after tax was £20.7m, an increase of 35.3%.
Diluted earnings per share were ahead 34.3% at 4.7p, and underlying earnings per share increased 6.5% to 17.9p.
The Equiniti board said the growth in its revenue reflected the acquisition of EQ US, as well as “strong” organic revenue growth of 7.3%, with its retention rate of FTSE clients standing at 100% alongside new wins across all divisions.
New share registration clients included Bodycote, Dunelm, Wm Morrisons and National Grid, with new client wins including Combined Nuclear Pension Plan, Mastercard and Ofcom, and new IPO mandates including Aston Martin, Avast and Funding Circle.
It said it renewed or extended its relationships with clients including Abbey Life, BAE Systems, Carnival, Lloyds Banking Group and Metropolitan Police.
Equiniti also launched new products in the US, with the business returning to growth in the second half of 2018.
On the strategic front, the acquisition of EQ US was successfully completed on 1 February 2018, with the board reporting that the integration was progressing “well”.
Its final separation from Wells Fargo was now expected to complete by June, for a total programme cost of no more than £45m, with expected synergies in line with the company’s previous guidance.
The integration of Boudicca Proxy was delivered, and cross-sold to 21 registration clients, and the acquisition of Aquila was completed on 31 October, which Equiniti said enhanced its technology and services for insurance and the life sector.
Equiniti also purchased the Cabinet Office's 24% stake in MyCSP during the year, increasing its stake from 51% to 75%, which the board said demonstrated its ongoing commitment to the joint venture.
The directors recommended a final dividend of 3.49p per share, which would give a total dividend for the year of 5.32p per share with growth of 21.7%, in line with the company’s progressive dividend policy.
“2018 was a year of pleasing progress against our strategic objectives, with record organic growth, and a successful entry into the attractive United States market,” said Equiniti chief executive Guy Wakeley.
“Despite the uncertain operating environment, we have continued to grow our revenues ahead of expectations, with more clients than ever before choosing Equiniti to deliver their registration and shareplan services.”
Wakeley said the firm’s acquisition of Wells Fargo Shareowner Services had created a “truly international opportunity”, both for its core share registration products as well as its broader suite of technology and shareplan solutions, adding that it had shown “pleasing” revenue and profit momentum during the second half, while continuing to make good progress with the separation and integration of the business.
“Equiniti operates in an environment characterised by significant change, driven by regulation, digitisation and cost reduction.
“The relevance of our services and automated technology capabilities has never been greater, and throughout 2019 our intent remains to deliver organic revenue growth, operating leverage and strong cash generation from our international platform assets.”
But despite the positive numbers and seemingly decent strategic growth, analysts at Liberum said there were "fewer positives than negatives", with investors appearing to agree.
As at 0941 GMT, shares in Equiniti were down 10.8%.
Liberum pointed out that much of Equiniti's outperformance came from lower margin remediation services in its Intelligent Solutions division, meaning average margins were slightly lower than expected at 23.0% compared to forecasts of 24.4%.
As a result, underlying EBITDA of £122.3m was still in line with Liberum's forecast.
"Depreciation and software amortisation was however materially higher than forecast, and as a result underlying profit before tax was 5% below our forecasts at £77.1m," Liberum noted.
"Underlying cash earnings per share of 17.4p was 8% below our forecast, in part reflecting a higher share count."