Lombard Risk Managementhttp://www.lombardrisk.com/ TICKER: LRM EXCHANGE: AIM
Lombard Risk Management (LRM) is a leading provider of specialist regulatory reporting and collateral management solutions employing around 380 staff. At end 2016 these niche solutions were used by over 340 banks, hedge funds, asset managers, prime brokers, corporate treasuries, utilities, oil groups, trading houses and other institutions.
Founded in 1989, Lombard Risk Management (LRM) is a leading provider of specialist regulatory reporting (47% H1’17 revenues) and collateral management solutions (53%) employing around 280 staff. These niche solutions are used by >340 institutions, including 30 of the top 50 global banks. 40% of revenues are recurring, coming from annual maintenance and support agreements, while 58% is denominated in non-sterling currencies.
Many bank executives often complain about the reams of financial red-tape, but not so Lombard Risk. This morning LRM delivered an update on what can only be described as a ‘phenomenal’ set of results – reporting that FY17 turnover, EBITDA and net cash will all be substantially above our estimates at £34.0m-£34.4m (vs ED at £31.8m), £2.4m-£2.8m (-£0.4m) and £7.0m (£1.4m) respectively.
Not only did H2 revenue climb 45% to circa £19.0m, surpassing the 43% achieved in H1 (£15.2m), but also, thanks to tight working capital and strong license sales (~£7m H2 vs £4.4m H1), H2 cashflow was positive at +£0.1m (vs ED -£4.5m), split -£1.6m Q3 vs +£1.7m Q4.
Once again the top line enjoyed buoyant demand for COLLINE (ED est 65% YoY), its best-of-breed Collateral Management software, especially ahead of the introduction of new Dodd Frank and EMIR (IOSCO) regulations on both sides of the Atlantic. This was ably supported by double digit expansion (ED est 25%) in Regulatory Reporting, forex tailwinds (£ weakness), and two major product launches (re AgileREPORTER and AgileCOLLATERAL).
These numbers show that H1’s numbers were not a flash in the pan - backed up by an even more impressive H2, with strong demand for LRM’s applications expected to continue for the foreseeable future. They also remove any lingering investor concerns that the business might need to raise fresh capital to fund its future growth plans. In our view, there are ample liquid resources to navigate through the severest of conceivable storms.
Progress is a stark reminder how materially undervalued the stock appears. Both on an absolute basis vs our new 26p/share valuation (20p before) - and relative to software peers, trading on a forward EV/sales multiple of 0.9x. That is despite being EBITDA and cashflow positive, along with generating organic growth significantly higher than the sector average.
Foreign buyers gorging on UK stocks
Document can be downloaded here: UK plc ‘going for a song’
Being a shareholder in a company that receives a juicy takeover offer is a marvellous feeling. Something that many fortunate investors have experienced over the past 3 years. Thanks to a spate of M&A bids by deep pocketed overseas buyers – partly triggered by the June 2016 Brexit result, which sent the £ tumbling and adversely affected the FTSE.
Consequently today, given this trend is unlikely to end anytime soon, we’ve highlighted 30 possible acquisition ideas in the attached research paper. Spilt equally between large and smallcap stocks – covering a broad selection of industries.
What’s more we believe most of these businesses are underpinned by strong fundamentals and substantial upside in the event of predatory interest.
According to Factset Mergerstat/BVR, the average bid premium paid for such deals between 2004-14 was 30% – with the figure trending upwards since the global financial crisis.
Happy investing. Published 27th August 2019