JTC Plc (LON:JTC) is an independent administrator to over 5,600 client groups, working in partnership with third party advisers, accountants and lawyers. It has a global platform with offices in 17 jurisdictions. The market for administration services to funds, corporates and private clients is in a structural growth phase driven by increasing regulation, outsourcing, consolidation and globalisation. We expect JTC to deliver above market earnings growth with defensive qualities.
High quality earnings
JTC has highly-visible revenue streams: its relationships with thousands of client groups are long-standing. Its revenues are predictable, non-cyclical and recurring from “open-ended” contracts for the provision of services to multi-year structures, typically charged on time & materials or fixed fee basis.
The company’s well-invested global platform should enable rising EBIT margins. There has been a deliberate investment in headcount in recent years. Management estimates that the current South African service centre could service an additional c.20% workload on its current cost base. With revenue growth higher than cost growth, EBIT margin should return to levels >30%.
Its strong cashflow should fund both dividends and acquisitions. Our forecasts assume a 25% pay-out ratio. We expect management to be able to self-fund small, accretive bolt-on acquisitions.
Strong growth prospects
JTC delivers double digit organic growth. A report from PwC indicated that the market for alternative asset management is growing by 11% p.a. JTC additionally enjoys further growth driven by high retention rates, additional work from established clients and new client wins, increasing market share.
Recent acquisitions support incremental growth. JTC’s latest acquisition of Merrill Lynch Wealth Management International Trust & Wealth Structuring business unit (“ITWS”) reinforces its presence in the US.
The fragmented market offers potential consolidation opportunities. Our forecasts do not include future acquisitions. Since 2010, JTC has made 12 acquisitions; all pre-2017 acquisitions have been fully integrated.
JTC Plc has delivered revenue growth for the past 30 years. Over the past 5.5 years it has grown revenues by 21% CAGR. The combination of double digit revenue growth, benefits of scale and 4x-covered dividend should deliver reassuring growth and high double-digit shareholder returns each year. We see JTC as a core holding: a growth stock with defensive attractions.
At 304p JTC shares are 5% above the price at IPO on 14 March 2018 and on a 2018 PER of 18.4x, which is 22% below its listed peer, Sanne.
