Showing virtue of flexible cost base

Cavendish reported core PBT of £0.8m for the half-year to September 2026, down from £2.0m for the comparable period last year. Revenue was down 20% against a still tricky background for UK smaller companies. The result demonstrated a strong control over costs, which fell 16% over the period. We have cut our core net income expectation to £2.2m, from £3.9m. Currently, the stock is trading on just 4.3x EV/NOPLAT 2027E. There is no interim dividend.

• Strategy: Cavendish is an investment bank, focused on UK smaller companies (capitalised at less than £1bn) and providing capital raising and corporate advice. It is growing its private company business with relatively new offices in Manchester and Birmingham, and is improving its digital capability. It also has a debt advisory business.
• Results highlights: Revenues were down 20%, with the trading business and retainers marginally ahead but transaction revenue down 32%. With employee costs down 23%, core net profit fell to £0.8m (£1.5m). Cash of £10.6m, down on 1H’26, reflected last year’s dividend being paid in the 1H and lower revenues.
• Valuation: There is only one listed comparable company – Peel Hunt – which currently trades on a PER of 12.7x for Mar’27. We have used a DCF model, with a 15% discount rate to reflect market-fuelled volatility of returns. Our derived central value is £40m, or 10.5p per share, with a range of £39m-£60m. A return to more benign market conditions could see this rise substantially.
• Key risk: UK smaller companies have seen steady outflows of funds investing in the sector and a remorseless trickle of net delistings. There are various industry initiatives to turn this around, but it might, in the end, have to wait for the market to recognise the cheapness of the underlying investments. Uncertainty surrounding government tax initiatives is not helpful either.
• Investment summary: Cavendish – the product of the 2023 merger of finnCap and Cenkos – is a well-balanced business with M&A capability and capital raising in both public and private markets. Its ability to make core profits, even in tricky markets, demonstrates the strength of its diverse revenue streams; plus, it is supported by a strong balance sheet (£10m cash).