Profitable even in tough markets

Cavendish reported a return to profitability in the year to March 2025. Revenue was up 3% on a comparable basis – against a still tricky background for UK smaller companies – and adjusted pre-tax profit was £3.7m against a loss of £1.8m in the year to March 2024. The result was an indication of the strength of the diversified revenue stream – with both private and public divisions healthily profitable – and a strong control on costs, which fell on a like-for-like basis. Currently, the stock is trading on 9.4x EV/NOPLAT 2026E and 5.6x 2027E.

• Strategy: Cavendish is an investment bank, focused on UK smaller companies (less than £1bn) and providing capital raising and corporate advice. It is growing its private company business with new offices in Manchester and Birmingham, and is improving its digital capability. It also has a debt advisory business.
• Results highlights: Private company M&A transaction volumes were up 15% and average fee size +13%; offsetting a slight fall in public market transaction values. Fund raising fees rose 13% while revenue from retainers and the traditional securities trading side were flat. Pro forma, non-staff costs were reduced by 16%.
• Valuation: There is only one listed comparable company – Peel Hunt – which made a loss for its year to Mar’25. So, we have used a DCF model, with a 15% discount rate, to reflect market-fuelled volatility of returns. Our derived central value is £69m, or 18.4p per share, fully diluted, with a range of £68m-£90m. A return to more benign market conditions should see this rise.
• Key risk: The UK smaller company sector has seen steady outflows of funds investing in the sector – although there are early signs this may be reversing –and a remorseless trickle of net delistings. There are various industry initiatives to turn this round, but it might, in the end, have to wait for the market to recognise the cheapness of the underlying investments.
• 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 return to profitability in all areas, even in tricky markets, demonstrates the strength of its diverse revenue streams; and it is supported by a strong balance sheet (£21m cash) and a good dividend yield.