• Mark Watson-Mitchell

Kingswood Holdings – a totally undervalued growth story

I have to say that I am impressed by a company that made an adjusted £1.1m loss last year and will make a record £9.2m profit this year.


If that was not appealing enough to get you hooked then let me give you some more facts about Kingswood Holdings (LON:KWG).


With its shares standing at just 22.5p it is only capitalised in the market at less than £50m, yet it has an estimated revenue for this year to end December of £166m.


Two-thirds of its equity is held by two of the company’s directors.


The group, which is based in Guernsey, has operations in the UK, South Africa, and the US.


It employs almost 300 staff and today has around £9bn of client assets under advice and management.


Yes, Kingswood is in the financial services sector, and looks to be doing very well this year.


The Business


The group, which was formerly known as the European Wealth Group, has been listed on AIM since 2014. It changed its name to Kingswood Holdings in 2018.


The company, which engages in the investment management and financial planning business, operates through three segments: Investment Management; Wealth Planning; and US Operations.


It provides wealth planning, advice process, pensions and retirement planning, inheritance tax and estate planning, tax planning, succession planning, protection advisory, cash management, and foreign exchange services.


The group also offers corporate solutions to organisations, including support to HR departments with employee benefits administration and payroll services.


Kingswood serves private individuals, trusts, charities, corporates, universities, and institutions.


It services about 19,000 clients from a growing network of offices in the UK including Abingdon, Beverley, Conisbrough, Darlington, Derby, Eastleigh, Grimsby, Harrogate, Hull, Lincoln, London, Maidstone, Newcastle, Sheffield, Worcester and York.


Its overseas operations has offices in Johannesburg, South Africa and Atlanta, New York and San Diego in the US.


Growth Strategy


Kingswood is focused on becoming a leading player in the wealth and investment management market through targeted acquisitions in both the UK and the US, creating a global business through strategic partnerships.


The business has made continuous progress over the last 10 years fuelled by both acquired and organic growth.


Continue to build a leading, integrated wealth and investment manager in the UK organically and inorganically.


The fragmented UK market presents a significant opportunity for consolidation to drive growth, with another eight potential acquisitions currently in due diligence process.


Kingswood is one of the leading consolidators in the wealth management market

Further growth is projected across the business through a continued focus on integration, organic growth and delivery against its acquisition strategy.


The company’s near-term target is to build proforma UK AUM/A to over £10bn and to £12.5bn globally.


Kingswood is focussed on becoming a leading participant in its sector through targeted acquisitions in the UK and US, complemented by strong organic growth to create a global wealth management business.


The group’s management believes that with its current acquisition pipeline and organic growth trajectory, its medium-term target remains an achievable £20m operating profit.


Recently announced 2021 results


At the end of June, the group reported its annual results to end December 2021. It declared that the last year had been another transformational year for the company, with record levels of revenue and operating profit.


Group revenue for the year was £149.7m, a 488% increase on the prior year reflecting both the impact of acquisitions and its growth in the US.


Some 87% of the UK's revenue is recurring in nature, providing a strong, annuity-style fee stream.


While over in the States Investment Banking Fees are a larger portion of Kingswood’s US revenues, and transactional in nature, which means that recurring revenue in the US was just 7.4%.


At the year end the group’s net cash position was £42.9m, which was up by £39.0m on the previous year due to fresh funding.


Whilst the business continues to have strong momentum into 2022, revenue and operating profit will be impacted by negative market movement in the UK and lower capital market activity in the US.


Given macro-economic inflationary cost pressures, the group has stated that it will continue to maintain a disciplined approach to expense management.


Broker’s View


At finnCap, the group’s NOMAD and broker, analyst Mark Paddon has a 39p price aim for the group’s shares.


His estimates for the current year to end December are for revenues to increase to £165.8m, while adjusted pre-tax profits could swing around convincingly from and adjusted pre-tax loss of £1.1m to a £9.2m profit, with earnings progressing to 3.7p (0.8p loss) per share.


My View


Ahead of the group’s first-half Report, due late next month, I do feel that there is a likelihood that the shares could start to see some price recovery.


They closed at 22.5p on Friday night, having been up to 34p just a year ago.


Now that we know that the group has started to swing from losses into big profits, I am convinced that its shares could very soon break above the 30p level, at which point they would be trading on only 8.1 times prospective earnings.


An immediate purchase at around the levels could offer at least a 33% upside, certainly not to be sniffed at in these markets.


(Profile 03.12.19 @ 20p set a Target Price of 30p*)


(Asterisks * denote that Target Prices have been achieved since Profile publication)

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