Shares in stockbroker Cenkos securities fell over 18% on the 21st of September. This is after the small cap broker reported a 91% drop in pre tax profit as well as a 71% plunge in revenues in the first half of the year. Nonetheless, the company stated that it was satisfied with the fact that it had eked a pre tax profit of £1.7m for the six months ending June. This was in spite of a much decreased level of revenue.
In the first half, the company raised £529m of behalf of clients. This is a reduction of 74% from the over £2 billion it had raised for clients within a similar period last year. Basic earnings for each share dropped 95% to 1.2p per share, spurring the company to slash its interim dividend by 86% to 1p per share. Cenkos blamed the poor performance on a tough market environment resulting from United Kingdom’s vote to leave the European Union in June. It also cited wider micro economic uncertainty that saw total funds raised by firms listed on the Aim junior market of the London Stock Exchange plunge by 30% to £1.93 billion within a period of six-months.
In addition, the company warned that there was still some increased uncertainty in the equity markets due to Brexit; something that posed a principal risk to the way it conducts business. All in all, its CEO, Mr. Jim Durkin, insisted that Cenkos was in a good position to capitalize on improvements in market conditions. According to him, the company had made an excellent start to the second half of the year. He went on to state that an institutional demand to fund high quality firms and ideas exist. Since July, Cenkos’ management has been engaged in relation to several significant fundraisings; with its current pipeline being quite encouraging.
The company’s business model relies on how strong its relations are with a few senior fund managers at larger institutions. Examples of these institutions include Woodford Investment Management, Lansdowne Partners, and Invesco, which owns over 14% of Cenkos’ shares. Cenkos relies of a handful of key individuals, comparatively low overheads as well as an eat-what-you-kill’ approach that is highly-geared towards performance. The company’s deal –driven strategy means that it is more prone to market downturns. Also, it does not possess the same level of corporate retainer fees that it can rely on during harder times as its main competitors the likes of Numis. The company’s plight highlights the substantial pressure that such firms have been facing in recent years due to competition.