- Strong start to 2024
- But margins expected to dip this year
Elixirr International (ELIX) has reported double-digit growth, and momentum is set to continue into 2024. Revenue at the Aim-traded consultancy increased by a fifth in 2023 to £85.9mn, and adjusted Ebitda jumped by 24 per cent to £25.4mn.
Organic revenue growth was strong at 15 per cent, and this was evenly spread between existing clients and new ones. Acquisitions were responsible for the remaining progress, with Elixirr branching out from strategy consulting into areas such as artificial intelligence and data analytics.
Revenue per partner has increased by 7 per cent to £3.9mn and Elixirr managed to poach three new partners last year, suggesting its reputation in the industry is strong – despite plenty of competition.
Market conditions remain “challenging”, with UK banking clients proving particularly troublesome, according to chief executive and founder Stephen Newton. However, the group has diversified in recent years, meaning it is less exposed to the fortunes of the financial services sector.
This seems to be paying off. The group achieved record sales in the first quarter of 2024, and revenue for the full year is expected to reach £104mn-£110mn. Adjusted Ebitda margins are due to dip from 30 per cent to 27-29 per cent as a result of a recent acquisition, but this still implies profit growth of at least 11 per cent.
Much will depend on how Elixirr’s acquisition strategy plays out, and investors don’t have much to go on in terms of track record. For now, however, this ‘challenger’ consultancy is thriving in a difficult market for the biggest players. Buy.
Last IC View: Buy, 590p, 18 Sep 2023
ELIXIRR INTERNATIONAL (ELIX) | ||||
ORD PRICE: | 585p | MARKET VALUE: | £277mn | |
TOUCH: | 580-590p | 12-MONTH HIGH: | 665p | LOW: 402p |
DIVIDEND YIELD: | 2.5% | PE RATIO: | 16 | |
NET ASSET VALUE: | 253p* | NET CASH: | £12.8mn |
Year to 31 Dec | Turnover (£mn) | Pre-tax profit (£mn) | Earnings per share (p) | Dividend per share (p) |
2019 | 24.5 | 1.73 | 3.18 | nil |
2020 | 30.3 | 5.82 | 11.7 | 2.20 |
2021 | 50.6 | 12.2 | 22.0 | 4.10 |
2022 (restated) | 71.7 | 15.7 | 27.9 | 10.8 |
2023 | 85.9 | 22.1 | 37.5 | 14.8 |
% change | +20 | +40 | +35 | +37 |
Ex-div: | tbc | |||
Payment: | Aug 2024 | |||
*includes intangible assets of £101mn, or 213p a share |
There is too often in today’s media an ill-informed and negative notion of what management consultants do, purported by media commentators with little direct experience of the sector they cover. It is an image of an industry, which offers PowerPoint strategies, worthless advice and ‘here today, gone tomorrow’ support, all for astronomical fees.
The reality of course couldn’t be more different. Modern British consulting is, in fact, a cutting-edge and hugely-competitive sector, which is at the forefront of AI and technological innovation, critical business transformation and driving sustainability improvements. British consultancies are deeply invested in their 10,000[1] clients, making this global powerhouse the most respected consulting center in the world.
As well as the false perception of what they do, there is also a stereotype of who consultants are. But the idea that the industry is staffed solely by London-based, Oxbridge-educated consultants with little or no experience is completely divorced from reality.
Modern British consultants are, in fact, incredibly diverse. The sector is a leading employer of women and people from ethnic minority backgrounds. Recruitment of apprentices and school leavers is rising; intake from Russell Group universities is falling. More than 270 regional offices are spread out across the U.K., as is the impact of consultancies’ long-running volunteering programs. Over 70 percent of the Management Consultancies Association (MCA) members are SMEs.
The career trajectory has drastically changed, too. As with many careers, long gone are the days when employees stick with the same company for decades on end. Rather than starting out as analysts and, years later, rising to the role of partner, increasing numbers of consultants are moving around between our clients in industry, government and consultancy. The term ‘revolving door’ is often used negatively, but it is through this movement that many consultants sharpen their skills and broaden their expertise and benefit the collective growth of U.K. plc and our public institutions.
It is their specialist skills and expertise that place consultants in such high demand. As the world transitions to net zero and adapts to a future dominated by new technologies like AI, governments and businesses are reaching for trusted advisers, renowned for their deep sector knowledge and breadth of experience. They also look to consultancies as the great convenors of the global economy, able to bring together specialists from across disciplines, often at short notice.
In many ways, this is management consultancy’s moment. We are living in uncertain times, and the capabilities, advice and support provided by consulting firms big and small is invaluable. We are also living at a time when businesses are crying out for talented people to fill their vacancies, and it is the consultancy industry that is investing hugely in skills, training up the bright young sparks from all backgrounds who go on to become the international CIOs, COOs and CEOs of the future.
It is no wonder, then, that the industry which generates £20 billion of revenue is growing at 9 percent per year, outperforming the rest of the U.K. and indeed the U.S. economy in terms of expansion and growth rates.
As the industry’s trade association, the MCA celebrates the people behind these statistics. We champion not only the effect their hard work has on the economy, but the impact they have on our society. Pretty much everyone in the U.K. has benefited from management consultancy; this is, after all, the industry that helped to deliver the world-leading Covid vaccination program and which drove waiting times for breast cancer screenings down by a third.
Yet it is primarily for partnerships with the public sector that management consultancy receives most criticism. There is a view among some that a penny of taxpayers’ money spent on external advice is a penny wasted. The lazy assumption is as far from reality as the false images of consultants and their industry.
For a start, management consultants usually join projects with the express aim of saving money, improving productivity and delivering better outcomes for taxpayer-funded services. Efficiency is their middle name. The biggest vote of confidence in their value comes from the private sector, which makes up 80 percent of consultancies’ work. These clients include Britain’s most successful companies and best-loved brands. Does anyone really believe that these shrewd businesses are being hoodwinked into wasting their money? The truth is they’re more than satisfied with the service they get, which is why clients come back to their consultants, again and again.
The world is satisfied, too. We don’t hear it very often, but modern British consulting is the second-largest such industry in the world. From Peru to Saudi Arabia and Bangladesh, clients from across the globe keep buying British, whether that is for advice on cybersecurity, or support in their shipping industry. They know they’re getting the best of the best. That reputation is why exports have trebled in recent years. The sale of British services overseas far outstrips that of goods, and consulting forms a large proportion of those services. Some people lament that shift. They say the U.K. doesn’t make anything anymore. But we do. We make businesses more successful. We make government projects happen. We make countries more prosperous. That is the reality of modern British management consulting. It’s time we started shouting about it.
[1]MCA Annual Industry Report 2024
House prices, ITV (ITV), Wincanton (WIN), Rightmove (RMV), Tritax Big Box (BBOX), Dar Global (DAR) and Babcock International (BAB)
House prices have risen for the first time in over a year, and also beat expectations for both annual and monthly gains. According to lender Nationwide, the average UK home rose 1.2 per cent in value over the year to February, to £260,420, as mortgage costs fell due to banks’ expectation that the base rate has peaked.
The rise marks the first annual increase since January 2023 and defies predictions from economists polled by Reuters, who forecast a 0.7 per cent annual increase. House prices rose 0.7 per cent on a seasonally adjusted monthly basis for February, compared with Reuters economists’ prediction of 0.3 per cent.
Nationwide added that house prices are now around 3 per cent lower on a seasonally adjusted basis than at the all-time high recorded in the summer of 2022. ML
ITV sells Britbox International stake
Shares in ITV (ITV) jumped by over 15 per cent following news that it had sold off its entire stake in BritBox International for £255mn in cash. Net proceeds, including loan repayments, accrued dividends and tax, are expected to reach £235mn and will be used to buy back shares. The buyback scheme will start “imminently” after ITV’s full-year results are published on 7 March.
The TV company has sold its 50 per cent interest in the streaming service – which broadcasts shows such as Father Brown in North America – back to BBC Studios. ITV said it is now “focusing on supercharging” ITVX, its own advertiser-funded streaming platform. JS
Read more: ITV’s valuation case
Rightmove’s share price slides despite earnings and dividend bump
Rightmove’s (RMV) share price sank 4 per cent in early trading despite the housing market website’s sales and dividend growing by a tenth.
Revenue rose to £364mn from £333mn for the last calendar year, in line with analyst expectations, as estate agents spent more money to market their properties in a weaker market. Earnings per share grew from 23.4p to 24.5p, covering the dividend over four times, which rose from 5.2p to 5.7p.
The market reaction comes amid high expectations for the stock, which trades at 21 times the consensus forecast earnings for 2024. Total memberships dropped 1 per cent, meaning the revenue rise came from a smaller group paying more, as rival website OnTheMarket looks to eat into Rightmove’s market share following its takeover by US property data giant CoStar (US:CSGP). ML
Dar Global posts profit in maiden results but remains illiquid
Luxury home developer Dar Global (DAR) posted an $81.2mn (£64.3mn) pre-tax profit in its first full-year results since it listed in the largest UK real estate IPO in years. However, the stock remains highly illiquid despite pledges to increase the free float.
For the 2023 calendar year, it posted $361mn in revenue and $0.23 earnings per share. It trades at $3.68, a high premium to its $2.60 net asset value per share as of 31 December. However, the price has hardly moved since listing in February last year due to the limited free float available, with 88 per cent owned by Dar Global’s backer, parent company Dar Al Arkan Real Estate.
Chief executive Ziad ElChaar told Investors’ Chronicle that it is hoping to increase the free float over the next 12 to 18 months to around 30 to 35 per cent. “It is one of the priorities of the company,” he said, adding that it is looking to partner with developers outside of the Middle East to attract more institutional investment. ML
Read more: Can Dar Global live up to its own lavish expectations?
- Housebuilders are responding to market slump
- Limited information about bulk deals
The past two years have shown just how cyclical the housebuilding business is. Higher interest rates have slashed private buyers’ budgets, so many of the UK’s biggest players have been bulk-selling homes to large buyers at discounts and eating the margin hit. Registered social housing providers (RPs), local councils and large institutional private rented sector (PRS) landlords buy these homes, sometimes before construction has completed or even started, and, in most cases, they then lease them out.
The model is an understandable response to a market downturn and can benefit investors, their buyers and the people ultimately living in the homes. However, many of these bulk deals are opaque, despite currently accounting for around a quarter of the largest listed housebuilders’ sales on average (see table). There is even less disclosure on RP deals, even though the limited information available suggests they can account for a significant proportion of these deals, and there is evidence of large housebuilder sales to at least one RP that is non-compliant with regulator standards.
We asked the UK’s largest listed housebuilders what proportion of their revenue in their most recent results came from sales to RPs, as well as for details on who those RPs are. Vistry (VTY) was the only FTSE 350 housebuilder who agreed to name some of its RP buyers. The rest of the FTSE 350 housebuilders declined to comment beyond the limited information available in their results. Only MJ Gleeson (GLE) and Springfield Properties (SPR), not in the large or mid-cap index, were fully transparent.
Investors should be wary of the opacity surrounding this proportion of housebuilder revenue. A source close to the Regulator for Social Housing (RSH) told us many of the units large housebuilders bulk sold to RPs during the 2008-09 downturn “needed additional work” and that RPs are “not sufficiently commercial when dealing with housebuilders”. As such, investors should scrutinise the current crop of bulk sales, especially when the fallout from the Grenfell fire tragedy shows how the high costs of poor dealmaking can come back to bite housebuilders years later.
Housebuilder | Bulk/partnerships as a proportion of total* (%) | RPs as a proportion of total* (%) | Disclosure of RP names |
Vistry (VTY) | 100 | 55 | Partial |
Persimmon (PSN) | 22.7 | 22.7 | None |
Springfield Properties (SPR) | 22.2 | 16 | Complete |
MJ Gleeson (GLE) | 22 | 5.72 | Complete |
Bellway (BWY) | 14 | 13.7 | None |
Barratt Developments (BDEV) | 12.5 | 4.7 | None |
Crest Nicholson (CRST) | 26 | Unknown | Partial in results |
Taylor Wimpey (TW.) | 12.9 | Unknown | None |
Redrow (RDW) | 2.8 | Unknown | None |
Berkeley (BKG) | Unknown | Unknown | None |
*Sales (or completions where sales were undisclosed) as per most recent results | |||
Source: Company figures, IC analysis |
The amount of publicly available information is extremely limited. Some 4.7 per cent of Crest Nicholson’s (CRST) home sales were to RPs according to its latest results. Over the same period, the housebuilder entered into four joint ventures (JVs) with RPs through which it is to build homes for them. Two of those JVs, worth a combined £5.8mn, were with A2 Dominion Developments, an RP deemed non-compliant with the RSH’s standards. In its latest judgement on the RP from January, the RSH said: “This provider does not meet our governance requirements. There are issues of serious regulatory concern and in agreement with us the provider is working to improve its position.”
Asked about our findings, an RSH spokesperson said: “Social landlords must make sure that all their tenants’ homes meet our regulatory standards, as well as relevant building regulations and health and safety requirements. This applies to all homes, regardless of whether they were built by a social landlord, acquired from a third-party developer or delivered through a JV.
“When considering arrangements with private developers, social landlords should carry out appropriate due diligence, identify potential risks and carefully assess how they could impact on their financial plans.”
The good news
MJ Gleeson and Springfield Properties disclosed a complete list of the RPs to which they have sold houses. Castles and Coasts Housing Association and Livin Housing bought the small number of social homes MJ Gleeson bulk sold, according to its most recent results, and both are deemed compliant with RSH standards.
Meanwhile, Springfield bulk sold social homes to nine Scottish RPs, all deemed compliant with the Scottish social housing regulator’s requirements, and five local councils. According to the Scottish regulator, tenant satisfaction in most of the RPs and councils to which Springfield sold was below the average, but this could refer to sentiment before Springfield sold to them.
Investors may also consider the partial transparency of Vistry as a bull point. It told us it had sold to more than 90 RPs, albeit it only named the for-profit RPs Sanctuary, Clarion, Home Group, L&Q, Sovereign, Livewest, Midland Heart, Abri and Notting Hill, as well as non-profit RPs Sage and Legal & General. All the RPs it named are compliant with RSH standards.
Finally, there are the deals with large PRS landlords. Most of the bulk sales MJ Gleeson detailed in its most recent results were to private equity giant Carlyle Group. And, while Barratt declined to reveal the names of any of the RPs to which it had sold, it has been open about the 258 homes it sold to Citra Living, a PRS landlord owned by Lloyds Banking Group. Meanwhile, Vistry has been open about its 5,000-home deal with Sigma Capital Group.
The transparency matters for investors because while the sector is banking on a housing market recovery, analysts and commentators have suggested that this may not feed through to housebuilders themselves until around 2025. In the meantime, they will likely be engaging in more bulk sales.
And even after a recovery, companies selling en masse will continue. Vistry’s whole model depends on it, and others could copy that model even in good times. MJ Gleeson chief executive Graham Prothero said earlier this month that investors should distinguish between bulk sales, where housebuilders begrudgingly “bundle up and sell” homes initially planned for private sales in response to a weak market, and partnerships, where housebuilders such as Vistry intentionally partner with RPs, councils, or PRS landlords ahead of construction.
In other words, while bulk sales might fall away, partnership deals are likely to stay, certainly for Vistry and possibly for other housebuilders. Investors should want to know precisely how much revenue depends on those partnerships, and who those partners are.
Moneysupermarket (MONY), house prices, Rightmove (RMV) and Abrdn European Logistics Income’s (ASLI)
The hike in motor and other insurance premiums last year drove growth at comparison site Moneysupermarket (MONY) last year, as people shopped around for cheaper deals. An 11 per cent increase in revenue was fuelled largely by a 28 per cent growth in the company’s insurance business – its largest segment. Strong demand for holidays also meant its travel business grew by a third, but the energy switching market remained moribund and the Quidco consumer cashback business for which the company paid an initial £87mn in late 2021 was flat. Operating profit rose by 9 per cent but a fairly downbeat outlook statement meant the company’s shares dipped by 2 per cent. MF
Read why we’re bullish on Moneysupermarket
House sales and asking prices rising
House sales and asking prices are rising as confidence returns to the housing market, according to data from property website Rightmove (RMV). The number of deals jumped 16 per cent in the first six weeks of this year compared with last year, and the activity was 3 per cent above 2019 levels.
It said this is being driven by increased options and enquiries, with the number of properties coming to the market up 7 per cent on last year and the number of buyers enquiring to estate agents also up 7 per cent. Meanwhile, the annual difference in asking prices is 0.1 per cent, the marginal increase marking the first rise since August 2023.
“There continue to be reasons for cautious optimism as we settle into 2024, with encouraging activity levels and a more stable housing market,” said Rightmove director Tim Bannister. ML
Read more: Green shoots of recovery for UK house prices
GSK (GSK), Microsoft (US:MSFT), house prices, Alphabet (US:GOOGL), ITM Power (ITM) and Ecora Resources (ECOR)
Blockbuster jabs Arexvy and Shringrix helped GSK (GSK) beat consensus expectations in its 2023 financial year. The group’s total sales across the 12 months to 31 December were up 5 per cent to £30bn – but excluding Covid-19 treatments, this figure was a more robust 14 per cent.
Turnover from the group’s vaccine portfolio was up 24 per cent thanks in large part to the RSV jab Arexvy, which only launched in the second half and has already logged more than £1bn in sales. Almost all of this turnover came from the United States, where the company said some 6mn of the 83mn older adults most at risk from the virus have already been vaccinated.
Investors have previously had misgivings about the weakness of GSK’s drug pipeline, but these appear to be diminishing as the company makes concerted growth efforts. At the close of last year, it had 71 vaccines and speciality medicines in clinical development, including 18 in the third and final trial stage. The group now anticipates 2024 revenue growth of 5-7 per cent. Positive as these developments seem to be, investors appear to need further convincing, as GSK’s shares had fallen more than 1 per cent by mid morning. JJ
Read more: GSK commits to dividend despite uncertain outlook
Microsoft meets high expectations
Microsoft’s (US:MSFT) revenue growth continues to be driven by the excitement around its AI products.
In the three months to December, the group’s revenue increased 18 per cent year-on-year to $62bn driven by the 30 per cent growth in its cloud computing division Azure. This was slightly ahead of Factset consensus which had forecasted revenue of $61.1bn. The earnings per share of $2.93 was way ahead of the analyst forecast of $2.77.
Promisingly, AI services boosted Azure revenue growth by 6 percentage points, up from the 3 percentage points last quarter. GitHub Copilot, its AI coding program, saw subscribers increase 30 per cent quarter-on-quarter, meanwhile, its low code AI enabled Power Platform saw users jump over 80 per cent.
Capital expenditure of $11.5bn was slightly lower than expected but this helped boost free cash flow which was up 86 per cent year-on-year to $9.1bn.
As the fastest-growing cloud computing company, Microsoft continues to take market share from Amazon and Google. For now, it remains out in front of the AI race. AS
Read more: How to find the next winning AI shares
Alphabet shares drop despite growth
Alphabet’s (US:GOOGL) revenue beat expectations but a miss on free cash flow meant its share price dropped in after hours trading.
In the three months to December, Google’s parent company saw revenue rise 13 per cent year-on-year for the quarter to $86.3bn (£68bn) which was 1.2 per cent ahead of analyst expectations. A three-percentage point jump in the operating margin to 27 per cent helped operating profit rise 30 per cent to $23.7bn. However, a big deferred tax payment meant the $7.81bn of free cash flow was less than expected.
Search revenue and YouTube revenue rose 13 per cent and 16 per cent year-on-year respectively, as the digital advertising market continues to recover, although these numbers were slightly lower than analysts expected.
Cloud computing revenue grew 26 per cent year-on-year to $9.2bn which was just ahead of expectations. This was an acceleration from the 22 per cent growth last quarter. However, it was behind Microsoft Azure’s 30 per cent growth, which was reported on the same day.
Importantly, cloud operating profit of $864mn was up $266mn from last quarter, and a big improvement on the $186mn loss in the same period last year. This shows with increased scale cloud computing margins should continue to improve and the 45 per cent increase in capex to $11bn shows Google plans to keep growing. AS
Read more: Cloud computing growth is the new benchmark
Ecora income slides
Royalty company Ecora Resources (ECOR) had signposted a significant drop in income for 2023, given the shift away from its royalty area at the Kestrel coal mine and weaker output and prices from the Voisey’s Bay cobalt stream.
The company duly reported $64mn in portfolio income for the year, down from $143mn in 2022. This was 3 per cent ahead of RBC’s forecast, however. The company should see higher revenue from Kestrel this year, and is also pushing further into nickel and cobalt, through a $7.5mn deal to raise the royalty on the pre-production Piaui mine in Brazil. Further cash is needed from Ecora to get the mine built, and the company has upped its loan book by $25mn. This takes total borrowing capacity to $225mn. AH
New Delhi: The government on Thursday said it is planning to sell over 2.91 lakh ‘enemy property’ shares in 84 companies to individuals and corporates in tranches as it looks to dispose of assets of individuals who had migrated to Pakistan and China.
In the first tranche, the government is looking to sell about 1.88 lakh shares in 20 companies and has invited bids from 10 categories of buyers, including individuals, NRIs, Hindu Undivided Families (HUFs), Qualified Institutional Buyers (QIBs), trusts and companies by February 8, according to a public notice.
Assets left behind by people who have taken citizenship of Pakistan and China — mostly between 1947 and 1962 — are called ‘enemy property’.
The proposed share sale is part of the government’s initiative to dispose of “enemy property” in the country.
Buyers will have to place bids for shares they wish to buy and any price quoted below the reserve price set by the government will be rejected. The reserve price will be kept confidential from prospective bidders.
As many as 2,91,536 shares of 84 companies are held by the Custodian of Enemy Properties for India (CEPI).
In a public notice, the Department of Investment and Public Asset Management (DIPAM) said “GoI proposes to sell 2,91,536 shares of 84 companies”.
It also listed the names of select 20 companies and 1,87,887 shares it proposes to divest.
DIPAM said interested buyers will be required to submit their bids, indicating the number of shares of companies they intend to bid for and the bid price for the respective shares in a specified form.
The government shall fix a reserve price for shares of each of these companies, which shall not be disclosed, it said, adding that price bids submitted at a value lower than the reserve price shall be rejected.
“Shares will be allotted to eligible bidders who have submitted a valid price bid, on a price priority basis subject to the approval of government of India,” the DIPAM said.
The procedure and mechanism for disposal of enemy shares, under the custody of CEPI was approved by the Cabinet on November 8, 2018.
SBI Capital Markets was appointed as a merchant banker and selling broker for sale of shares held by CEPI.
Last month, Union Minister of State for Home Ajay Kumar Mishra had informed Parliament that shares worth more than Rs 2,709 crore were sold by the government as part of its initiative to dispose of enemy properties in the country.
The sale of such shares is done on the recommendation of a high-level committee which suggests the quantum and price level. The proceeds of sale or disposal of the enemy property are deposited into the consolidated fund of India.
This post was last modified on January 12, 2024 12:41 pm