It’s hard to remain unimpressed by Curtis Banks Group’s (LSE: CBP) interim results released this morning. Operating revenue is 98% higher and diluted earnings per share shot up 206% compared to a year ago. The directors marked the occasion by slapping an extra 50% on the interim dividend.
Big in SIPPs
The company started up in 2009 to focus on the pension market and now administers many of the UK’s Self-Invested Pension Products (SIPPs) and a few Small Self-Administered Schemes (SSASs). Organic and acquisitive expansion drive growth, and a big part of the good figures we see today derive from a full contribution from the May 2016 acquisition of Suffolk Life Group Ltd.
However, the Suffolk Life Brand isn’t responsible for all of the good news. The directors insist that strong organic growth played a part too, and organic new business is running at an annualised rate of expansion of over 9,000 SIPPs. The firm has around 75,000 SIPP clients generating assets under administration around £23bn. So organic growth is running at about 12% per year. In the firm’s eight years of existence, it has grown to become the UK’s largest dedicated Full SIPP provider.
I reckon the Suffolk Life purchase was good value. Back in May 2016, Curtis Banks raised £27m through a placing of new shares to fund the acquisition along with existing cash resources and new debt. At the time, the placing diluted existing shareholders by about 19%. Meanwhile, borrowings sit at around £95m, which compares to the current market capitalisation of £151m or so.
More to come?
The firm reckons it has long-standing relationships with regulated advisory firms that introduce clients, and high levels of repeat business make the directors confident that customers are pleased with the service and organic growth will continue. City analysts following the firm expect earnings to advance 37% for the whole of 2017 and 10% during 2018.
But just as the acquisition of Suffolk Life was transformational for Curtis Banks, Michelmersh Brick Holdings (LSE: MBH) is also digesting an acquisition that looks set to launch the firm’s figures into a quantum leap. The specialist brick manufacturer released its half-year report today with revenue up 6% and earnings per share declining almost 8%, but the results to the 30 June show just seven days of trading after the £31m acquisition of Carlton Main Brickworks.
Another transformation?
The directors expect the acquisition to deliver a “significant” increase in the output of bricks and financial performance for the firm during the second half of the year, which means we could see a spectacular change along the lines of Curtis Banks’s recent performance. Meanwhile, Michelmersh offset some of the cost of the acquisition with the sale of its Dunton site for £2.68m, but still increased net debt to £20.7m after drawing £24m to meet the full cost. Prior to that, the firm had £2.7m in net cash.
Although both Curtis Banks and Michelmersh Brick have geared up their balance sheets to make their big acquisitions, I reckon future cash flows could help both firms pay down borrowings in reasonable time. From an investing point of view, I think these two are worthy of your further research right now.
