Mid-cap financial technology company NEX Group (LSE: NXG) delivered an interesting trading update this morning. Its operations are deeply embedded in the financial industry with the firm providing trading platforms, expertise and other services for global banks, asset managers, companies and others.
A return to normalised conditions?
I think it’s a fair bet the company has its finger on the pulse of the world’s financial markets and in a sector outlook statement today the firm said: “Despite ongoing low volatility and a flat yield curve, financial markets have started the long and slow journey to more normalised conditions.” The directors cited further interest rate rises in the US and early signs of improved economic conditions in Europe as evidence to support their assessment.
If that view is correct, what does that mean for investing? I think it’s a reasonable mind model to assume that after such a deep plunge into last decade’s financial crisis the crawl out of the pit will be long, slow and possibly painful. So we could have much further to travel despite big gains on the stock market after one of the most hated and mistrusted bull runs in a generation.
Trading well
Nex is certainly firing on all cylinders. Revenue is up 10% on a constant currency basis for the firm’s first quarter of the trading year compared to a year ago, suggesting that perky-looking City analysts’ estimates could be on the money. Projections are for earnings per share (EPS) to shoot up 31% for the year to March 2018 and 18% the year after that.
At today’s 644p share price, you can pick up stock on a forward price-to-earning (P/E) ratio of 19 for the year to March 2019 and the forward dividend yield sits just under 2.7%. That’s a full-looking valuation but justified if the firm’s growth stays on track.
Shooting the lights out
Music to the ears of shareholders in any company sounds like this: “The Board is confident that profit before tax for the full year will be ahead of current market expectations.”
That’s what the eponymous chief executive of international specialist professional recruitment firm Robert Walters (LSE: RWA) said in a trading statement released today. The firm saw net fee income lift 18% for the first six months of the trading year and Mr Walters put the firm’s performance down to its international footprint and the breadth of recruitment solutions it provides.
Around 72% of net fee income originates abroad and in its assessment of growth in all international regions, the firm uses an encouraging dictionary of superlatives such as ‘excellent’. Meanwhile, City analysts following the firm expect EPS to lift 3% during 2017 and 13% in 2018.
A bumpy ride up?
The shares jumped up nicely this morning on today’s news and sit around 445p, which throws up a forward P/E ratio of just under 14 for 2018 and the forward dividend yield sits just over 2.3%. That valuation looks undemanding, but expect a bumpy ride if you take the plunge and buy shares now because the firm’s inherent cyclicality will likely keep the stock responsive to macroeconomic news and investor perception. We’ll get a fuller picture with the interim results due out on 26 July.
