Regular readers may recall that we have tipped AIM listed STM Group before, but we think that the fall in the share price combined with the positive trading update announced on 30 November makes the shares worth another look.
The company is a financial services group which specialises in the provision of international retirement solutions and life assurance products. Clients are high-net worth individuals, cross-border investors and expatriates and these clients have access to a range of services including tax, legal, trusts and pensions advice. The company has offices in the UK, Gibraltar, Jersey, Malta and Spain.
In line with other businesses, the company has suffered from the pandemic although its trading has proved remarkably resilient in the circumstances. In the six months to 30 June, revenues were only marginally down on the same period in 2019 at £11.8m (2019: £11.9m) although underlying pre-tax profit fell to £1.1m (2019: £1.6m). The decline in profit is largely due to increased professional indemnity insurance costs and additional staffing costs. These results benefited from the high level of recurring revenue which accounted for 85% of the total.
Th recent trading statement has stated that the group expects revenues of around £23.7m for the full year, with pre-tax profits of £2.0m on the cards. Earnings per share are likely to come out at around 2.7p. These figures are both expected to increase in 2021 despite the effect of Covid-19.
At 30 June, the group had net cash of £17.6m and yet the market capitalisation of the company is only slightly more than this at £18.8m. However, it should be borne in mind that regulatory and solvency requirements account for much of this. Nevertheless, the company paid an interim dividend of 0.55p per share and hopes to pay a final dividend as well – assuming a modest full year payment of 1.1p, the shares would yield 3.5%. We believe that the shares are undervalued by the market and although a recovery to last year’s high of 57p may be fanciful, a return to the 2020 high of 41p, reached in September, would represent growth of over 32%! BUY.