Shares in Cenkos Securities (LSE: CNKS) have jumped by as much as 10% this morning after the company issued a statement denying that it is under investigation by the Serious Fraud Office or that it has been asked to provide information on other cases by the SFO.
Cenkos’ shares slumped by 16% on Monday after the Sunday Times reported that the broker, which was the nominated advisor to the infamous Quindell, had been asked to hand over a selection of documents to the SFO.
However, the company reported today that the:
“Recent press article, citing the Company…includes a number of material inaccurate references to the Company. In particular, the Company wishes to confirm that it has not been asked to provide, and nor has it provided, any information to the Serious Fraud Office (“SFO”) in relation to any investigation being undertaken by the SFO and that the Company is not itself the subject of any SFO investigation.”
The company also says that it is working with its advisers to correct the inaccurate reporting.
Good news for shareholders
The revelation that Cenkos is not being investigated by the SFO is good news for investors. As an independent, specialist institutional securities group, focused on small and mid-cap companies and investment funds, Cenkos trades on its reputation, and an investigation into the company’s practices by the SFO, is unlikely to improve its reputation around the City.
What’s more, it’s highly likely that if Cenkos really was a subject of an SFO investigation, regulators would consider suspending the company’s licence to operate in the financial sector. As Cenkos’ principal activity is institutional stockbroking, this would cripple the business almost overnight.
Still, Cenkos isn’t under investigation by the SFO, and the company remains authorised by the Financial Conduct Authority.
It has been a rough year for Cenkos’ shareholders. Since mid-April, the company’s shares have fallen by around 30%, as the group’s growth has slowed. Indeed, for the six months to the end of June, Cenkos’ sales declined 19% year-on-year, and pre-tax profit fell 21%. Earnings per share fell 16% year-on-year to 26.1p putting the brakes on five years of stellar earnings growth for the company. Between 2009 and 2014 Cenkos’ earnings per share tripled and the company paid out a total of 50p per share in dividends to investors.
However, despite falling profits Cenkos continues to return plenty of cash to its investors. At the end of September management declared a 7p per share interim dividend and only a few weeks ago the company returned £8m to investors via a tender offer, repurchasing 4.5m shares (7.3% of the company’s issued share capital) at £1.80 each. At the end of June, Cenkos reported a cash balance of £42m, around 40% of the company’s market capitalisation.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.