WH Ireland

www.wh-ireland.co.uk
Ticker: WHI Exchange: AIM

WH Ireland is a stockbroker and asset manager with a substantial wealth management division which provides financial planning services. It covers the full range of stockbroking activities including private client investment management, execution-only dealing, research, institutional dealing, corporate finance, corporate broking and market-making. It is based in Manchester with branches in London, Birmingham, Bristol, Cardiff, Colwyn Bay, Craigie by Kilmarnock, Leeds and Malvern. The corporate finance division is particularly active in advising and raising money for Mining and AIM-listed companies. It has over £1bn of Assets Under Management and Control and private client investment management generates around half of group revenue and a majority of group profit.

Latest Reports

Light at the end of the tunnel

Published: 1st March 2018
WH Ireland is a financial services company offering private wealth management, wealth planning, and corporate and institutional broking services.

It has nearly completed a major transformation process at significant cost, £4m of which has been quantified in the accounts, but much of which, such as double-running costs while switching systems, has not. So we have eschewed profit forecasts in this period as they would be meaningless as a guide to the value of the company. 2018/9 will still be affected by last phase of the transformation process, but should be far less so than the previous few years.

The transformation had to start with creating a modern management structure with risk management and compliance embedded in it. Allied with this is the continuing strategy of improving the “quality” of revenue, making it more reliable and less subject to the vagaries of the market, so that it can provide the high level of service that its clients expect with less risk of falling into loss in a market downturn like 2007/8.

Forecasting is always difficult, especially about the future, so we tentatively offer a range of profit estimates of £1.5m to £1.75m for 2018/9 and £2.25m to £2.75m for 2019/20. The ‘sensibly cautious’ end of our ranges imply EPS of 4.36p and 6.5p in each financial year.

An earnings-based valuation of 172p (using the mean of Rathbone’s and Brewin’s PERs) is lower than our ‘sum of the parts’ valuation, although above the current price, because WHI has not yet exhausted the costs of the transformation process and the benefits are still in the process of accruing. Therefore we continue to advocate a “sum of the parts” valuation giving £72.4m or 243p per share.


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Overcoming distractions

Published: 29th January 2018
WH Ireland is a stockbroker and asset manager with a substantial wealth management division which provides financial planning services.

The true performance of WHIreland (“WHI”) is obscured by a raft of exceptional costs, some of which have been quantified and some of which, particularly double-running costs during the changeover of their back office systems, are just included under “administrative expenses”. So we consider the £0.4m operating profit before exceptionals to be very conservative.

The past twelve months or so have involved a long, hard slog to complete “Project Discovery” to transfer the Private Client back office administration to the SEI platform and restructure the front office while preparing for the well-intentioned but controversial MiFID II.

These costs have (unsurprisingly) pushed WHI’s statutory results into loss despite its achieving “pre-exceptional“ profits in the last 12 months, and swallowed £3m< of its cash. Last week WHI announced that it had agreed, subject to shareholder approval, to raise £2.4m through a placing of 2m new shares at 120p, the “market bid price” on Friday. This will add to the £10.5m cash in its interim balance sheet.

It is difficult to gauge what its profits would be in a “normal” year, since we need to add back not only the identified exceptionals but also the unquantified ones, the more than £1m of cost savings anticipated, and the opportunity cost of the time spent on preparations for MiFID. 

So we continue to use a “sum of the parts” valuation giving £70m or 252p per share ahead of the proposed placing, £72.4m or 243p per share diluted.
 


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From recovery to growth

Published: 24th July 2017
WHIreland (WHI) is a financial services company offering services in Private Wealth Management (PWM), Wealth Planning and Corporate & Institutional Broking (CIB). The Private Wealth arm provides discretionary and advisory services to individuals, corporates, trusts and funds.

WHI has reported a dramatic improvement in first half profits with a turn-round from pre-tax losses of £1.52m to profits of £360k thanks to a 24% rise in revenue to £14.9m and a major reduction in one-off charges. 

Both divisions generated significant growth in revenues and profits. First half revenue increased by 24%, thanks to an improvement in each division, with the major driver in the improvement, compared to either half of last year, being the more-than-trebling of transactional fees in WHI’s Corporate & Institutional Broking division, returning them to significance in the Group total. 

Recurring revenue, the base for future profits, grew encouragingly by nearly 20% and is now 45% of the total - mostly due to a £1m (23%) increase in fees in the Private Wealth Management Division, partly due to growth in AUM, and partly to some clients switching to a fee-only basis. This has encouraged management to move the target for recurring income from 50% to 65% of revenue. 

Following a profitable half-year, the sale of the Head Office and repayment of the attached loan, cash is now c. £10m. Using a rule of thumb for Private Client assets under management and administration plus excess balance sheet cash, gives a value of £72m or 259p/share, i.e. taking no account at all of the value of the resurgent corporate and institutional broking division.  
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Building on strong foundations

Published: 27th February 2017

A strengthened balance sheet and the growth in funds managed for clients are the foundations for a recovery in WHI’s fortunes after a traumatic period for Small Cap stockbrokers. During 2015/6 the Private Wealth Management division increased AUM by 14% to £2,872m, well ahead of the 8% rise in the WMA Balanced index with a significant 32% increase in the more valuable Discretionary funds to just over £1 billion. The rise in markets since end-November suggests that AUM may well now be over £3 billion. Fee income has continued to grow to £12m or 47% of total revenue. Since the year-end WHI has sold its Manchester Head Office for £5.27m, £0.52m above valuation, repaid associated debt and thereby increased its cash reserves to more than £11m.

The arrival of KEH Group as a major shareholder, purchasing 23% of the share capital from a group of shareholders at 140p, a substantial premium to the then market price, is viewed positively. KEH Group’s CEO, Humphrey Percy, has joined the board as a non-executive director. Other recent appointments include Victoria Raffe joining WHI as a non-executive director, and last week’s news that Adam Pollock is joining  as Head of Corporate Advisory and Broking.

Mattioli Woods recently paid 5.5% of AUM for a 49.9% stake in Amati which would imply a value of £56m, or 204p/share for WHI’s Discretionary AUM alone, i.e. ignoring its advisory and execution-only AUM, its corporate broking business, and the £11m of cash. 

Our usual sum-of-the-parts valuation uses a more conservative 4% for Discretionary AUM, 2% for Advisory and 0.5% for execution-only giving £61.7m (ignoring the rise since 30/11/16) plus the excess of its £11m cash over regulatory requirements, so roughly double the current share price (a little more if you adjust for the rise in AUM since the year-end, a bit less if you don’t). That’s putting no value on its corporate broking division which ranks 3rd among NomAds. The FTSE rise since end-November would add more than 10p/share to a valuation, so trying to quote one to the nearest p would be spurious precision.

 


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Strategic progress in choppy waters

Published: 21st July 2016

WH Ireland (WHI) is a financial services company offering Private Wealth Management, Wealth Planning and Corporate Broking services. 

Results today show that , helped by winning a number of significant mandates, AUM grew 6% in the half-year, despite a 2% fall in the FTSE All-Share index, with a particularly strong 24% rise to £949m in the more valuable discretionary FUM. This actually exceeded the rise in total AUM as the move to a fee-based system has led, in those clients' interests, to the closure of some inactive accounts.

In the light of market conditions we cannot be surprised at the decline of one-quarter in WH Ireland's total revenue in H1 2015/6. This has been one of the worst periods for AIM brokers with falls in companies listed, trading activity and money raised. Pre-referendum uncertainty, on top of worries about China, hit trading activity and money-raising (the main source of income for AIM brokers and NomAds); the latter slumped by more than 30% compared to H1 of WHI's 2014/5 year. 

However, WHI's balanced group of activities in wealth management, corporate broking and market-making enables it to survive a slowdown in any one division. It is one of the leaders in AIM corporate broking with 95 clients and yet again increased its market share of over 9%; its reliable retainer income covers all of its corporate broking division's employment costs. So, if conditions improve, then profitability will rebound. 

Using any version of the rule-of-thumb valuation gives a value far in excess of WHI's market capitalisation for its wealth management division alone; on 4% for Discretionary FM, 2% for Advisory and 0.5% for Execution-only, one gets £57.1m or 221p/share - applying the 6% that was paid for Towry's AUM would give over £6/share! 

Our sum-of-the-parts valuation including the Wealth Management division, equity in the Head Office and cash surplus to regulatory requirements (but ascribing no value to Corporate Broking) is £62m or 240p/share, nearly treble the current price. 

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Achieving growth in falling markets

Published: 29th February 2016
The preliminary results announced today by WH Ireland ("WHI"), for the year to 30 November 2015, show strong growth of 40% in headline earnings per share, resulting from useful, but more modest, increases in both absolute numbers and market share for AUM and corporate clients, allied to effective cost control. These have been achieved despite the well-publicised travails of the SmallCap sector and, in particular, the AIM market, where WHI is one of the leading corporate brokers and NomAds with a 9% market share.

Within the Private Wealth Management division management fee income increased by an impressive 32% to £6.5m, thanks to a rise in discretionary funds during the year. Likewise in Corporate Broking retainer income rose 5.75%, and transaction fees rose to £5.6m, but net revenue from market-making declined, as the whole AIM market suffered declining secondary share volumes.

Updating our sum-of-the-parts valuation: 4% for discretionary AUM, 2% for advisory and 0.5% for execution-only, plus surplus cash and the equity in the Manchester Office property (at 2013 valuation), comes to £57m or 223p/share, even without attributing any value to the corporate broking division. A pessimistic valuation, using 3% and 1.5% in a non-take-over situation and applying a 10% conglomerate discount, still gives 158p, two-thirds higher than WHI's current share price.

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Share Placing and FCA settlement

Published: 23rd February 2016
WH Ireland has this morning announced the terms of a settlement with the FCA relating to deficiencies in the systems and controls for the protection against risk of "market abuse" during a period 3 years ago. The sanctions comprise a fine and a temporary restriction on its investment banking division.

In a separate announcement WHI has also announced that it has placed 1,193,000 new ordinary shares to raise approx. £1,070,000, at a price of 90p per share, (a premium to last night's close). This placing has been supported by its 2 biggest institutional shareholders, Oceanwood Capital and Polygon, who between them will now own over 30% of WHI. 

The group's top management, including compliance, has been completely replaced and strengthened since Richard Killingbeck's appointment as CEO in 2013: Dan Cowland joined as Finance Director in March 2014, Jamie Baptiste was recruited for a new role as Head of Group Risk in December 2014, and a new compliance officer, Graeme Pollok was appointed in December 2015. Tim Steel, formerly with Cazenove Capital Management, joined the board as a non-executive director in March 2014 and was elected Chairman in December 2015. 

The completion of this long-drawn-out discussion which has absorbed a lot of top management's time and energy frees them to return to their "day job" of running the company. WHI is due to report its Final results (for the year to 30 November 2015) on the 29th of February. 

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Strategic Investor buys 23% of WHI

Published: 20th September 2016
W.H. Ireland ("WHI") has gained a new and powerful strategic investor in Kuwaiti European Holdings ("KEH"), the vehicle of the highly respected Al-Humaidi  family, which has purchased 23% of the shares at 140p per share, a 39% premium to Friday's closing price. KEH owns substantial businesses in leisure, property, financial services and healthcare, including an investment management company in Kuwait and a FCA-regulated firm in the UK. The FCA has approved a "change of control" allowing KEH to buy up to 29.9% of W.H. Ireland.

We can visualise significant benefits: firstly synergies between WHI and the Kuwaiti investment manager (many Kuwaitis wish to invest in the UK), secondly KEH will use WHI's expertise when making other investments in the UK, thirdly KEH's access to capital can fund any attractive acquisition opportunities that come WHI's way.

The price KEH paid for the shares is a substantial 42% discount to our estimate of a sum-of-the-parts valuation for WHI (of 240p per share), but an almost equal 39% premium to the market price on Friday evening (pre announcement). Paying £8m+ at a significant premium to the market price looks like a strong vote of confidence in the strategies that WHI CEO Richard Killingbeck and his team have been pursuing.

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Strategic Investor buys 23% of WHI

Published: 20th September 2016
W.H. Ireland ("WHI") has gained a new and powerful strategic investor in Kuwaiti European Holdings ("KEH"), the vehicle of the highly respected Al-Humaidi  family, which has purchased 23% of the shares at 140p per share, a 39% premium to Friday's closing price. KEH owns substantial businesses in leisure, property, financial services and healthcare, including an investment management company in Kuwait and a FCA-regulated firm in the UK. The FCA has approved a "change of control" allowing KEH to buy up to 29.9% of W.H. Ireland.

We can visualise significant benefits: firstly synergies between WHI and the Kuwaiti investment manager (many Kuwaitis wish to invest in the UK), secondly KEH will use WHI's expertise when making other investments in the UK, thirdly KEH's access to capital can fund any attractive acquisition opportunities that come WHI's way.

The price KEH paid for the shares is a substantial 42% discount to our estimate of a sum-of-the-parts valuation for WHI (of 240p per share), but an almost equal 39% premium to the market price on Friday evening (pre announcement). Paying £8m+ at a significant premium to the market price looks like a strong vote of confidence in the strategies that WHI CEO Richard Killingbeck and his team have been pursuing.

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