UK Edition
This column continues to cast around for companies that could benefit from an end to lockdowns and restrictions and what just might be a return to a degree of normality – all while seeking some protection from falls should a new variant emerge to confound everyone’s best-laid plans.
Legal services and credit hire for motorists might not seem like an obvious choice but that is one reason why Anexo has the potential to deliver some positive surprises, while its undemanding valuation offers some protection.
First researched some 16 months ago, Anexo helps drivers who are involved in car accidents that were not their fault by handling legal claims and replacement vehicles, which are charged to the at-fault drivers’ insurers.
Business levels dipped in 2020 as lockdowns meant there were fewer drivers on the road, fewer accidents and thus less need for the company’s assistance. But a trading update last week said revenues were better than expected and profits would come in “materially higher” than analysts’ forecasts for 2021.
Moreover, the three positive trends that are driving that improvement should continue in 2022. The number of cars back on the road should continue to recover this year and that is likely to mean more claims from fault-free drivers.
Meanwhile a surge in second-hand car prices means claim values are rising and a gradual reopening of the courts is allowing more cases to be heard and settled. Improved case resolution should in turn help cash flow, which has been crimped by higher trade receivables (hence the weak cash conversion).
December’s announcement of a new service for people who live in substandard housing adds another string to Anexo’s bow, while the firm continues to represent some 15,000 claims from Volkswagen drivers in a class action suit over the “dieselgate” emissions scandal. A verdict in favour of the claimants would further boost Anexo’s earnings, although analysts are sensibly not including this in their forecasts.
Even without any success in the VW case, Anexo’s shares hardly look expensive on less than 10 times earnings for 2021, a multiple that consensus profit forecasts of a one-fifth increase in earnings per share suggest could fall to barely eight in 2022.
Such a tempting price tag may explain why asset manager DBay Advisors, a shareholder with a 29pc stake, tried to buy the whole firm at 150p a share last summer, albeit without success.
DBay’s holding, coupled with the 38pc stake held by three senior executives, may make the shares less liquid than some and the spread between brokers’ buying and selling prices (2pc at the time of writing) could be wider than investors are used to, especially for larger stocks.
However, we already have a double-digit percentage paper gain on Anexo and there could be more to come. Hold.
Questor says: hold
Ticker: ANX
Share price at close: 143.5p
Update: Clinigen
Investment firm Triton last week increased its offer for Clinigen, the specialist pharmaceuticals and services company, to 925p a share from December’s initial tilt of 883p. The board is recommending the new bid.
It would be a surprise if the offer were rejected and closure of the deal would present us with a 30pc capital gain in fairly quick time since our first look in August 2020, with dividends on top.
This column does not get it right all the time by any means but at least this may be a good example of how looking for contrarian value can work. Last summer’s price plunge after a profit warning meant the shares had devalued from around 25 times adjusted forecast earnings at their peak in autumn 2017 to barely 10 times.
Valuation remains the ultimate arbiter of investment return. The deal will seal a welcome gain.
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