Investment banking company Numis Corporation (LSE: NUM) has been a big Covid winner. And at 338p, the shares have risen by just over 100% since the spring plunge. But even now, I reckon it’s a share I might buy.
Today’s full-year results report covering the period to 30 September 2020 revealed the figures driving the stock’s progress. Revenue rose by almost 39% compared to the prior year. And that led to a 240% increase in earnings per share. On top of that, the cash performance was good with the net cash balance increasing by nearly 49% to just over £125m.
Why I think Numis is a share to buy now
It’s expensive for companies to list on the stock market as a plc. And it’s expensive every time a company wants to raise extra capital by, for example, issuing new shares. But Numis benefits from corporate market activity. It’s a recipient rather than a payer of the often eye-watering fees common in the world of finance and the stock markets.
But big fees are attractive if I own shares in an investment banker such as Numis. Indeed, to access the markets, other companies must deal with Numis or one of its competitors. Meanwhile, a quick glance at the strength of the financial position at Numis shows how lucrative the firm’s position can be.
Numis said in the report that capital markets deal volumes increased “significantly” during the second half. Many of the firm’s corporate clients accessed the market for funding because of the disruption caused by the pandemic. Almost £102m of the company’s nearly £155m revenue came from investment banking activities in the period. And around £77m of that was taken via capital market fees.
However, the directors reckon “material” declines in M&A and IPO volumes offset the increased activity. And that happened because of companies pausing strategic plans while firefighting to keep their balance sheets healthy through the Covid crisis. But towards the end of the year, companies began to access the markets again “in support of revised growth strategies.” Either way, I reckon Numis wins.
A positive outlook
Looking ahead, revenue continued in the first two months of the current trading year “in line with the strong second-half performance of FY20”. The directors said investors reacted to the latest vaccine developments “providing a favourable environment for our Equities business”. So, in the other arm of the Numis business, execution commissions and trading gains have been “strong”. On top of that, the company is seeing the beginning of a recovery in M&A activity. And the IPO pipeline is “stronger than it has been for some time”.
Numis has held the shareholder dividend flat since 2016 and didn’t miss a payment because of the pandemic. With the share price near 338p, the dividend yield is just over 3.5%. And I’m tempted to buy and hold some of the shares as we move forward into what could be a buoyant period ahead for economies, companies and the stock market.