STM Group (LON:STM) – prudent approach is very sensible
Well done Alan Kentish and Therese Neish, the CEO and CFO respectively of this cross-border financial services provider.
Earlier this week the company issued a Trading Update which defined out the new conservatism within the group’s accounting.
They have assumed that the Gibraltar life companies will no longer passport rights into the EU after Brexit.
The group’s management has also now concluded that it would not be prudent to include any growth in the new business run rate for its expatriate SIPP revenue.
What is more Covid-19 has had its impact on overall business.
So, the group has adjusted its expectations going forward. At the same time it has stringently cut back on anticipations in its budget planning cycle.
Alan Kentish commented that "The prolonged nature of the Covid-19 pandemic has had a more significant impact than we previously anticipated. This is frustrating but does not greatly affect the strong core existing business which gives us reliable revenue visibility and a stable long-term platform to operate from.”
He went on to state that " Notwithstanding the more prudent approach taken, we are confident in a step-change in profit growth for 2021, albeit from the lower rebased profit position for 2020. STM has a stable business model and a strong balance sheet so these short-term challenges, while unwelcome, require that we adjust our timescale not our ambition."
That is good enough for me. The group’s brokers reassessed their estimates accordingly.
For the year to the end of this month they go for £23.7m of revenues, £2.4m of adjusted pre-tax profits, earnings of 3.5p and a dividend of 1.7p per share.
Next year some £25.4m of revenue could produce £3.2m profit, 4p of earnings and a 1.8p dividend.
For 2022 a lift to £27.0m in turnover is seen, producing £4.2m pre-tax, earnings of 5.9p and a healthy 2p per share of dividend.
The finals should be reported in March next year.
On the more prudent approach I will ease back my price objective to 45p.
Last night the £17.6m valued group’s shares closed at 30.8p. That still offers a very good upside potential.
(Profile 27.05.20 @ 33.7p set a Target Price of 50p, now regraded to 45p)