XPS Pensions Group plc (LON:XPS) full year results which include the acquisition of Punter Southall in January, are in line with our expectations. The merger of Xafinity and the pensions administration business of Punter Southall, has created the largest “pure-play” pensions consultancy in UK based on proforma revenues. These results set out the platform on which XPS are building. Highlights are:
* Total revenue for the year of £66.0m increased 27%, which includes contributions from Punter Southall (£12.8m) and HR Trustees (£2.0m);
* Adj ful dil EPS of 9.3p (Zeus forecast: 9.3p; Bloomberg consensus 9.2p);
* 6.3p total DPS (Zeus forecast & Bloomberg consensus: 6.2p).
The integration of Xafinity and Punter Southall is proceeding smoothly:
* Launch of new brand, XPS, and creation of common culture;
* Clear reporting lines and combined common teams;
* Successful pitching for new business with joint teams;
* No disruption, no client losses, no loss of staff;
* Detailed planning for the exit of Transition Services Agreement (TSA) in 2019.
Xafinity’s underlying revenue growth rose from 1.8% in 1H to 6.5% in 2H, as Xafinity’s 14 client wins started to contribute to revenue. In recent months, XPS has won numerous large mandates which should contribute to revenue later this year.
In recent months, XPS Administration won “Third Party Administrator of the Year” (Professional Pensions independent survey of over 250 pensions managers and trustees) coming top in every category assessed. This is a clear and independent indication of the quality of one of XPS’ core services.
Zeus view
XPS has good momentum. Results for FY(Mar)18 are in line with our forecasts, which we revised after the Punter Southall merger completed in January 2018. New business wins lead us to nudge up FY19E and FY20E revenue forecasts by 1.8% and 1.7% (see page 2 for details). Cautiously, we have assumed additional costs when the TSA ends, and this is fully reflected in FY20E.
Valuation
At 192p XPS is trading on a prospective PER of 18.8x and 3.6% dividend yield. This rating reflects the quality of XPS’s earnings and dividend stream.
