Cube UK Report (1 Feb 2021) – Broker wars

Cube UK Report (1 Feb 2021) – Broker wars

Good morning folks,

Let’s quickly review the announcements today:

  • Hargreaves Lansdown
  • Ryanair Holdings
  • Staffline
  • Venture Life
  • DX

Hargreaves Lansdown

  • Stock data should display here.
Market cap £8.0 billion
RNS Half-Year Report
Writer disclosure No position in HL. Long IGG.

Brokers have been making headlines in recent days, as Robinhood and other brokers pulled back on the services they offered in relation to Gamestop, AMC Entertainment, etc.

Some have been wondering about the risk of insolvency to brokers, amid rumours of huge collateral calls within the financial system.

That’s the context in which I’m reading today’s report from Hargreaves Lansdown – a more conservative organistion than those whose main business is providing options, CFDs, spread bets, and the like (though there is trading service provided by IG to HL customers – see here).

Key points:

  • revenue +16%
  • assets under administration +16% (most of this driven by rising asset prices)
  • PBT +10%
  • dividend +6%

CEO statement – plenty to digest here. The main point in relation to customer activity is that equity trading volumes  rose by an enormous 123% versus the prior year. Surely not a sustainable level of activity?

Outlook – lots of confidence in the future, and a snippet on recent trading:

Trading in January has been similar to other lockdown periods with strong dealing volumes, significant client engagement and robust net new business and net new client numbers. The UK’s tax year-end should as ever provide us with a great opportunity to engage with existing and new clients, helping them to make the most of their tax allowances and build up their wealth. Beyond this, things become less certain but we remain committed to our client led strategy and will continue to invest to improve and increasingly personalise the client experience and our proposition.

Financial Review

Revenue on funds was virtually unchanged. I guess it has been a tougher time for funds (think of Woodford).

Revenue on shares, by contrast, increased by nearly 150%. This reduced the share of HL’s revenue that’s recurring in nature from 81% of total to 65% of total.

Operating costs increased by a hefty 27%, and this constrained profit growth.

Company comment on the cost outlook:

Looking forward we would anticipate that costs will grow broadly in line with the growth of client numbers. Cost growth in 2020 was marginally ahead of this due to the unusual marketing opportunity to acquire new clients and exceptional dealing volume costs.

My view – this is an admirable business in many ways, and certainly high-quality. If I was a long-term holder, I’d probably continue holding it. But as a non-holder, I don’t think the buying opportunity offered today is anything special.


Ryanair Holdings

  • Stock data should display here.
Market cap €16.0 billion
RNS 3rd Quarter Results
Writer disclosure No position.

Ryanair’s Q3 ends in December, so today’s Q3 numbers are compared to Oct-Dec 2019.

  • traffic down 78%
  • loss of €306 million (vs. profit €88 million)
  • €3.5 billion cash

And it is confirmed again that non-EU shareholders are set to have restricted voting rights (due to EU rules on airline ownership).

As you can see, the famous load factor falls to a miserable 70% (normally runs near 100%).

Operating costs could only be reduced by 63%, versus an 82% drop in revenue.

There is a typically forthright comment on the industry and political landscape:

The Covid pandemic has caused the closure of EU airlines including Flybe, Germanwings, Level and Montenegro Airlines.  Norwegian has already entered a creditor protection examinership and Eurocontrol predicts more EU airline failures in 2021.  Significant capacity reductions have been implemented by many EU airlines and a flood of unlawful State Aid has been committed by EU Govts to their flag carriers including Alitalia, Air France/KLM, LOT, Lufthansa, SAS, TAP and others.  This illegal State Aid distorts competition and the level playing field across EU aviation.

Despite this negativity, Ryanair is confident that aviation will recover “in the coming months”.

Cash: there’s €3.5 billion, with €1.5 billion in debt maturing in the next six months. Ryanair points out that 80% of its fleet is unencumbered, and claims that its balance sheet is “one of the strongest in the industry”.

My view

Again I don’t see a brilliant buying opportunity here, as Ryanair’s net income in the “good old days” (2016-2018) was only c. €1.4 – €1.6 billion. Won’t shareholders be waiting a while to get back even to those levels? Is the long-term growth trajectory as attractive as it was? Looks to me as if there is plenty of recovery and future success priced in already.



Trading and Business Update – this beleaguered staffing business says that it improved its revenues, underlying operating profit, working capital and cash generation in H2 2020, and underlying operating profit will be marginally ahead of expectations.

Shareholders are rewarded with a 0.8% rise in the share price.

Lots of economic activity in many of its sectors:

Staffline experienced strong demand for temporary recruitment from the food, driving, logistics and e-commerce sectors in 2020, whilst the manufacturing, retail and automotive industries continued to be more challenging. Despite the national lockdown in November and restrictions in December, the Group still experienced a strong Christmas trading peak, with significant demand from the Group’s food retail customers. Furthermore, e-commerce and logistics experienced a very strong trading period as a result of consumers transitioning to online retail.

Net debt – merely £9 million of financial net debt as of 31 December 2020, but this is said to include “a number of timing effects, including the benefit of deferred VAT relief from Q2 2020 of £42.9 million“.

For context, the company’s market cap is only around £40 million. Less than its outstanding VAT bill!

It will be able to pay this bill in instalments until March 2022. But how is it going to be able to do it?

We get this coy remark from the directors:

Notwithstanding the combination of corrective measures taken in 2020, which has resulted in a significant improvement in working capital, the board continues to evaluate its options in relation to strengthening the Group’s finances. Whilst the outlook for Staffline in the near-term is not without its challenges, the board remains cautiously optimistic.

My view

Surely in bargepole territory, given the VAT bill?


Venture Life

Trading update – profit to be ahead of market expectations, but despite that, the share price is down today.

The Company expects to report revenues for the year ended 31st December 2020 of £30.1 million, 49% higher than for 2019, and adjusted* EBITDA is expected to be not less than £6 million, more than double the 2019 adjusted EBITDA. 

CEO comment:

The placing and open offer completed in December 2020 has given us substantial funds, leaving us with net cash (excluding finance lease liabilities) of £35.5m as at the year end,  with which we can now pursue our ambitious acquisition growth and, with an order book ahead of the same time last year, I look forward to updating the market further as we go through the year. “

My view – I always had the impression that this company was of decent quality. But they have more to do, to prove that the acquisition strategy is sound.



Trading Update – a good H1 update, albeit with a few dark clouds:

Trading over the period continued to track materially ahead of last year up until Christmas. Since then momentum has remained encouraging although B2B volumes have been modestly impacted by the national lockdown imposed in December. Nonetheless, the Board now anticipates that DX will materially exceed current market expectations for adjusted profit before tax for the financial year. 


Volumes at DX Express were slightly better than management expected but margins have softened.

I don’t have a strong view on this one – logistics is not my sector.



Calling it a wrap there. Thanks for dropping by!





Wordpress (1)
  • comment-avatar

    STAF are marginally ahead, and the price is flat. DX. and VLG are both ahead, and the price falls. Although all have their caveats, not least the tax bill at STAF, the marked lack of enthusiasm displayed must surely be another mark of a toppy market.

    In case anyone is tempted, I have worked through STAF, and would invest in the company never.

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