Anexo Group (ANX)
Posted: July 3rd, 2022, 12:06 pm
Anexo Group has a £148m Market Cap and appears to be significantly mis-priced and I'm not sure why.
Headlines is that the company is profitable, has had a series of positive trading updates, on a forward P/E of 6.6 (5.9 for 2023), Various analysts have a price target between 200p to 300p
Margins:
Gross margin 77%
Operating margin 23%
EBITDA margin 30%
Anexo is a provider of litigation claims focused on the recovery of credit hire and repair costs for the non-fault motorist involved in a road traffic accident. This is Anexo's core service.
It should be noted that 'motorist' in this scenario is mostly motorbike riders.
Their market is fragmented, underserved and less competitive due to Anexo serving the ‘impecunious’ customer, where the non-fault individual does not have access to the finances to pay for a replacement vehicle upfront.
This individual has the right, supported by law, to reclaim costs of credit hire (above spot hire rates), damaged vehicle recovery, storage and repair/replacement plus management of related legal claims for the non-fault customer. All of these aspects are managed by Anexo and, quite interestingly, Anexo usually provides the temporary replacement vehicle.
Anexo has a record of winning 98%+ of litigated cases
In very recent times, announced in December 2021, the company entered into the Housing Disrepair business. Anexo facilitates claimants by ensuring that their landlords, whether they be local authorities, housing associations or private landlords, are obliged to maintain their homes to a decent standard. This includes a reasonable state of repair, the provision of reasonably modern facilities, and reasonable thermal comfort, including the absence of damp and mould.
This is backed by legislation - The Homes (Fitness for Human Habitation) Act and likely to be further advanced based by the recent (16 June 2022) 'Fairer private rented sector' white paper.
The company forsees this business to become increasingly important. It's easy to see why. 1300 cases per month were added January to April this year. According to govt figures there are around 2.25m homes that fail to meet the Decent Homes Standard.
On top of this there are a couple of major 'one-off's' which are not included in the company's forecasts.
Volkswagen Dieselgate class action - Based on an out of court settlement earlier this year with another legal company analysts are expecting a settlement of £39-52mn in total. This would result in an estimated £20-25mn to the business pre-tax after £4mn of associated admin. The court case is scheduled for January 2023 but it seems highly likely an out of court settlement will be made.
Then there is a likely repeat Dieselgate event in 2024 with class action claims against Mercedes Benz.
So if all of that is not enough, how about being the subject of a Takeover? At the end of December 2020 private equity firm DBAY Advisors Limited acquired a 29.0% of the company from Alan Sellers, Samantha Moss and Valentina Slater at a 150p.
(Alan Sellers, who founded the Group in 1996, remains Executive Chairman. Samantha Moss is the Managing Director, Bond Turner, and Valentina Slater is the Sales Director, Direct Accident Management Limited)
Eight months later DBAY made an offer for the company at 150p but this failed to follow through and they ended up with three nominated Non-Executive Directors on the Board. According to public reports Anexo and DBAY are getting along together. Whether DBAY will launch another bid remains open to speculation.
So if I look hard, what are the negatives for Anexo? Well, its related to 'time'.
Debtor days are in the range of 450-500 days. This is because it takes time to make and process submissions through the courts, part of it is COVID related with courts getting backed up but that is now easing. Additionally working capital get tied up as a consequence.
It's interesting to note that the Housing Disrepair business has a significantly lower cycle. This is because once an Engineers's report is made its very hard for a landlord to argue against it; hence does not go to court.
The other quibble is the amount of debt they have. £62m gives net gearing of 48% or 2.3x Operating profit. Hardly devastating although significantly up on prior years. Debt increased due to fund the additional working capital investment in the Group’s portfolio of claims, support the investment for the VW and Mercedes Benz claims and facilitate expansion of the vehicle fleet. It should also be noted that a number of their competitors have withdrawn from the market leading to increases in market opportunities and the company have sought to take advantage of this and increase market share.
So what are Anexo going to do about it? Well, the VW settlem£ent is earmarked to pay off £15-20mn of debt.
This year there is, IMO, likely to be further positive trading updates particularly from the Housing Disrepair business.
Other positive statements coming out are:
- Credit Hire division: Average vehicle numbers for the first four months of FY-2022 stood at 2,079, an increase of 52% on the same period for FY-2021.
- Cash collections for the first four months of FY-2022 are 24% ahead of those seen in the corresponding period in FY-2021.
- Housing Disrepair expects the number of settlements to accelerate as the year progresses.
In summary, a £147m market cap., profitable, expanding business with no direct competition, supported by legislation with visible pipeline of revenue, no excessive debt, almost certain major revenue windfall this year, (and again in 2025) trading on a forward PE ratio of 6.4, yielding of 1.3 per cent and priced near P/NAV of 110p.
What am I missing?
Links:
WH Ireland (NOMAD) - Search for 'Anexo'
Arden Partners (Previous NOMAD) - Search for 'Anexo'
Anexo Group Investors Page
Shares Magazine
Vox Markets
Headlines is that the company is profitable, has had a series of positive trading updates, on a forward P/E of 6.6 (5.9 for 2023), Various analysts have a price target between 200p to 300p
Margins:
Gross margin 77%
Operating margin 23%
EBITDA margin 30%
Anexo is a provider of litigation claims focused on the recovery of credit hire and repair costs for the non-fault motorist involved in a road traffic accident. This is Anexo's core service.
It should be noted that 'motorist' in this scenario is mostly motorbike riders.
Their market is fragmented, underserved and less competitive due to Anexo serving the ‘impecunious’ customer, where the non-fault individual does not have access to the finances to pay for a replacement vehicle upfront.
This individual has the right, supported by law, to reclaim costs of credit hire (above spot hire rates), damaged vehicle recovery, storage and repair/replacement plus management of related legal claims for the non-fault customer. All of these aspects are managed by Anexo and, quite interestingly, Anexo usually provides the temporary replacement vehicle.
Anexo has a record of winning 98%+ of litigated cases
In very recent times, announced in December 2021, the company entered into the Housing Disrepair business. Anexo facilitates claimants by ensuring that their landlords, whether they be local authorities, housing associations or private landlords, are obliged to maintain their homes to a decent standard. This includes a reasonable state of repair, the provision of reasonably modern facilities, and reasonable thermal comfort, including the absence of damp and mould.
This is backed by legislation - The Homes (Fitness for Human Habitation) Act and likely to be further advanced based by the recent (16 June 2022) 'Fairer private rented sector' white paper.
The company forsees this business to become increasingly important. It's easy to see why. 1300 cases per month were added January to April this year. According to govt figures there are around 2.25m homes that fail to meet the Decent Homes Standard.
On top of this there are a couple of major 'one-off's' which are not included in the company's forecasts.
Volkswagen Dieselgate class action - Based on an out of court settlement earlier this year with another legal company analysts are expecting a settlement of £39-52mn in total. This would result in an estimated £20-25mn to the business pre-tax after £4mn of associated admin. The court case is scheduled for January 2023 but it seems highly likely an out of court settlement will be made.
Then there is a likely repeat Dieselgate event in 2024 with class action claims against Mercedes Benz.
So if all of that is not enough, how about being the subject of a Takeover? At the end of December 2020 private equity firm DBAY Advisors Limited acquired a 29.0% of the company from Alan Sellers, Samantha Moss and Valentina Slater at a 150p.
(Alan Sellers, who founded the Group in 1996, remains Executive Chairman. Samantha Moss is the Managing Director, Bond Turner, and Valentina Slater is the Sales Director, Direct Accident Management Limited)
Eight months later DBAY made an offer for the company at 150p but this failed to follow through and they ended up with three nominated Non-Executive Directors on the Board. According to public reports Anexo and DBAY are getting along together. Whether DBAY will launch another bid remains open to speculation.
So if I look hard, what are the negatives for Anexo? Well, its related to 'time'.
Debtor days are in the range of 450-500 days. This is because it takes time to make and process submissions through the courts, part of it is COVID related with courts getting backed up but that is now easing. Additionally working capital get tied up as a consequence.
It's interesting to note that the Housing Disrepair business has a significantly lower cycle. This is because once an Engineers's report is made its very hard for a landlord to argue against it; hence does not go to court.
The other quibble is the amount of debt they have. £62m gives net gearing of 48% or 2.3x Operating profit. Hardly devastating although significantly up on prior years. Debt increased due to fund the additional working capital investment in the Group’s portfolio of claims, support the investment for the VW and Mercedes Benz claims and facilitate expansion of the vehicle fleet. It should also be noted that a number of their competitors have withdrawn from the market leading to increases in market opportunities and the company have sought to take advantage of this and increase market share.
So what are Anexo going to do about it? Well, the VW settlem£ent is earmarked to pay off £15-20mn of debt.
This year there is, IMO, likely to be further positive trading updates particularly from the Housing Disrepair business.
Other positive statements coming out are:
- Credit Hire division: Average vehicle numbers for the first four months of FY-2022 stood at 2,079, an increase of 52% on the same period for FY-2021.
- Cash collections for the first four months of FY-2022 are 24% ahead of those seen in the corresponding period in FY-2021.
- Housing Disrepair expects the number of settlements to accelerate as the year progresses.
In summary, a £147m market cap., profitable, expanding business with no direct competition, supported by legislation with visible pipeline of revenue, no excessive debt, almost certain major revenue windfall this year, (and again in 2025) trading on a forward PE ratio of 6.4, yielding of 1.3 per cent and priced near P/NAV of 110p.
What am I missing?
Links:
WH Ireland (NOMAD) - Search for 'Anexo'
Arden Partners (Previous NOMAD) - Search for 'Anexo'
Anexo Group Investors Page
Shares Magazine
Vox Markets