Delivering growth in a flat market
MAB’s results for the year to December 2017, which have beaten our expectations, confirm that it is growing in a relatively flat market. In 2017 MAB delivered:
- 14% yoy rise in average adviser numbers to 1,008 (31 Dec 17: 1,008);
- 17% rise in revenue to £108.8m (Zeus forecast £109m);
- 3% increase in average revenue per adviser (i.e. productivity is rising);
- 16% growth in adj PBT to £14.5m (Zeus forecast £14.1m);
- 14% rise in fully diluted adj EPS to 23.2p (Zeus forecast: 22.9p)
- 17% rise in DPS to 21.4p (Zeus forecast: 21.0p)
- 21% rise in cash to £22.6m (including over £13.2m of unrestricted balances which is up 22%)
The number of Appointed Representatives (ARs) which use MAB continues to grow. MAB has a strong pipeline of new ARs and management remains confident about delivering on its growth plans, both organically and from new ARs.
Zeus view: These results confirm MAB is delivering double-digit revenue, profit and dividend growth through growing adviser numbers and benefits of scale.
Management has indicated that it intends to “invest in IT” through increased day-to-day expenditure. We have increased our forecast IT costs materially: this results in a £0.3m increase in our forecast administration costs (N.B. 2017 administration costs were £0.1m below our forecasts). For 2018 we expect:
- 18% yoy growth in gross profit to £30.4m (2017: £25.9m);
- Gross profit margin of 23.2% (2017: 23.8%);
- 16% yoy growth in PBT to £16.8m (2017: £14.5m);
- 16% rise in FD adj EPS to 26.9p (consensus 2018: 26.5p 2017: 23.2p);
- 16% rise in the total DPS to 24.8p (consensus 2018: 24.6p; 2017: 21.4p)
For 2019 we expect FD adj EPS to rise 16% to 28.7p (consensus: 30.7p).
Valuation: At 612p MAB shares are trading on a 3.5% historic dividend yield, a 22.8x current year 2018 PER and, with prospects of 16% growth in 2019, a Price-Earnings-Growth ratio of 1.4x. Arguably, this valuation does not fully reflect the quality of MAB’s growing cashflow, earnings and dividend stream. At 700p MAB shares would yield 3.5% based on a 24.8p DPS for 2018.
