London, UK, 22 October 2020

Cenkos Securities (CNKS): Strong activity and lean cost base

Cenkos's first half results demonstrated the benefits of its flexible operating model and strength of its client relationships. While challenges related to COVID-19 are set to continue, Cenkos's focus is on growth companies and its fund-raising year-to-date has had a greater emphasis on corporates financing M&A and growth opportunities rather than for defensive purposes. This should prove more sustainable although, as always, the timing of transactions in the encouraging pipeline reported remains uncertain.

Cenkos trades on a price to book multiple of about 1x, well below its 10-year average of 2.2x. Using an ROE/COE model and assuming a cost of equity of 10% and long-term growth of 2% suggests that at the current share price the market assumes a sustainable return of 10.3% for Cenkos. This is ahead of the current relatively subdued level but well below the five-year average of 17%, and is similar to the 11% that could be achieved at the 2019 revenue level once full cost savings are in place and one-off costs fall away. 

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