Lacklustre stock market activity and a weakening of corporate confidence ahead of Brexit drove a troubled 2019 for Aim-listed stockbroker Numis, which reported a 61 per cent fall in profits on Wednesday.
Co-chief executive Ross Mitchinson cited political and macroeconomic uncertainty, driving a decline in corporate dealmaking and market activity as the main reason for the profit fall.
“Boardrooms have been reticent to make big decisions,” he said. “The market for UK equity issuance was a lot lower this year.”
Despite efforts to diversify into takeover advisory and private markets, Numis remains reliant on stock market deals such as IPOs for mid-market UK businesses.
Just five companies listed their shares in London in the first quarter of 2019, according to accountancy firm PwC, in the slowest start to a year on the stock market since the depths of the financial crisis in 2009. There were also fewer deals in 2018, with 66 IPOs in London compared with 89 the year before, according to Dealogic data.
Though Numis has the most clients of any UK stockbroker, according to Adviser Rankings, it has seen less success with larger companies. Just seven of its clients are in the FTSE 100, and its average client has a market capitalisation of £888m.
Numis’ pre-tax profits were just £12.4m for the year to September, 60.7 per cent lower than in 2018. Revenues were down 18 per cent to £111.6m. Bonuses for Numis’ 277 employees were also slashed dramatically, accounting for the bulk of a 17.2 per cent reduction in staff costs, according to Mr Mitchinson.
As this performance was previewed by Numis in a September profit warning, however, the group’s shares were hit and in fact rose 5 per cent by Wednesday afternoon to 245p.
At the same time as stock market activity has slowed, Numis, which spends almost 60 per cent of its revenues on staff, has been hiring. The group has raised headcount by 18 per cent in the past two years, partly because of the Mifid II securities regulations that have changed the way many financial institutions do business.
The new financial rules, introduced in January 2018, require banks to charge clients separately for research, driving research cuts by many major players and opening a potential opportunity for smaller outfits such as Numis. Numis’ research payments have remained stable even as the overall market has contracted.
As the Brexit saga approaches a potential denouement at the coming election, Numis’ fortunes will probably indicate just how much appetite for dealmaking exists in corporate Britain.
“We’re a bellwether or even a flywheel of corporate activity,” said Mr Mitchinson.