STM Group plc (LON:STM), the cross-border financial services provider, has provided the following update on trading for the year ended 31 December 2020, and expectations for 2021 and beyond.
In line with current market expectations, the Board continues to expect the Group will deliver revenue of £23.7 million, EBITDA of £3.6 million, and £2.0 million profit before tax for the year to 31 December 2020.
The strong recurring revenue base from exisiting business gives the foundation for our future growth and profitability and remains predominantly unchanged despite the significant macro-economic challenges.
As part of the 2021 budget planning cycle, the Board has now taken the decision to adopt a more prudent methodology to its guidance for the year ending 31 December 2021 (“FY21”) and beyond. This is set against a backdrop of on-going Covid-19 pandemic concerns, as well as very low interest rates and uncertainty in the financial markets. This has resulted in a number of changes to the assumptions being made, predominantly around new business.
The predictability and long-standing history of the QROP and company & trust businesses has meant that there are minimal changes to the Board’s expectations of performance for these segments. Similarly, the Board has not changed its expectations for the auto-enrolment and flexible annuity products.
This revised approach primarily affects the level of new business for our life assurance and SIPP products.
In relation to the life assurance businesses, we have made the decision to not include any new policies from EU member states as a result of the continuing uncertainty surrounding Brexit, and what, if any, passporting rights Gibraltar will have after 2020 year-end. In addition, the Board has now assumed that no new short-term life annuities should be included in the Group’s FY21 and FY22 expectations given these products are difficult to predict due to their long lead time. This is especially so in the current economic environment although the opportunity and product remain viable.
The Board has also now concluded that it would not be prudent to include any growth in the new business run rate for our expatriate SIPP revenue. Similarly, the Board is now assuming new UK SIPP business will be limited to current partnerships and introducers only, with a measured new business volume being generated by them and assuming no revenue from known but as yet untested partnerships.
Finally, the IT investments, as well as the acquisition accounting exercise carried out as per IFRS 3 on the Berkeley Burke acquisition earlier in the year, has resulted in an increased amortisation charge, a non-cash item that directly impacts our statutory profit before tax result.
We therefore now anticipate revenue growth of circa 7% for FY21 year-on-year, whilst operating expenses are only forecasted to increase marginally and thus enhanced EBITDA margins will be delivered. The improved EBITDA margin is largely as a result of both direct savings and increased operational efficiencies on the back of the IT projects invested in during the year. Further investment is expected in this area which has been reflected in the Board’s revised financial expectations.
Alan Kentish, CEO of STM Group commented:
“The prolongued nature of the Covid-19 pandemic has had a more significant impact than we previously anticipated. This is frustrating but does not greatly affect the strong core existing business which gives us reliable revenue visibility and a stable long term platform to operate from.
“In light of previous challenges around new business, the Board has used the 2021 planning cycle to take a more prudent approach to our forward guidance, given the Covid-19 backdrop, Brexit and the various challenges faced by our introducer base.
“Notwithstanding the more prudent approach taken, we are confident in a step-change in profit growth for 2021, albeit from the lower rebased profit position for 2020. STM has a stable business model and a strong balance sheet so these short-term challenges, while unwelcome, require that we adjust our timescale not our ambition.”
