STM Group PLC – STM – Trading Update

STM Group PLC – STM – Trading Update

STM Group Plc (AIM:STM), the cross-border financial services provider, updates on trading in relation to new business generation for the remainder of the year.

 

As previously reported, the economic backdrop created by Covid-19 has caused delays in securing new business, as many individuals and businesses defer significant financial decisions.  Traditionally though, the last quarter of the year has seen solid new business growth for STM, and this was certainly the expectation for 2020, particularly for our workplace pensions solution, as well as our new flexible annuity product. However, we are now seeing that certain initiatives are not yet delivering the volumes of business that we had expected and believe that it is prudent that we take a more conservative stance on our new business numbers for the remainder the year.

 

Despite our Options workplace pensions solution business currently achieving a 50% revenue uplift year-on-year, it  is now expected to fall short of its overall revenue target by circa £0.32 million, as a direct result of lower than expected new business for September and anticipated shortfalls in the remaining three months. In particular, delays and postponements of bulk transfers have meant our previous expectations for the last quarter were over-optimistic. Whilst management believes that this has created a timing delay for new business, it will also mean the membership base is lower going into 2021. Although the expected cost savings have been made since the acquisition, the business has a largely fixed cost base. Whilst this creates an operational gearing effect, it also means that the fall in revenue will translate into a corresponding reduction of profit for the Group.

 

In a similar vein, we have previously highlighted that the pipeline of flexible annuity new business continues to grow, but that conversion rates into applications remains frustratingly slow. Given that this is a relatively new product, expectations from management were that this rate would accelerate over time. To date, we have not seen this happen and therefore it is appropriate to scale-back our anticipated new business numbers for the remainder of 2020 and into 2021. The anticipated impact on new business revenue for the last quarter is £0.15 million, with this again directly impacting 2020 PBT.

 

As would be expected, our recurring revenue across the Group remains as steady and predictable as previously, and with low attrition rates. In addition, our costs base does not materially change month on month, giving us the solid base for future earnings growth, as and when our new business revenues accelerate.

 

There remain a number of specific initiatives and opportunities that remain in play for 2020 and into 2021, which have the ability to clawback some of the 2020 new business shortfall, however there is not sufficient certainty on their delivery to include them within our new 2020 business expectations.

 

Importantly, all our significant IT projects remain on track for completion in the latter part of 2020 and early part of 2021, and as previously stated, these will play an important part in delivering enhanced operating margins in 2021. We continue to actively pursue our acquisition and non-core business disposal strategy and are pleased to confirm that the integration of the recently acquired Berkeley Burke businesses continues in line with management expectations.

 

Alan Kentish, CEO of STM Group commented:

 

“It is incredibly disappointing to have to reduce our anticipated new business numbers, particularly given all the hard work involved in bringing the Options business into the STM family. Covid-19 has certainly created a more difficult backdrop in which to do business, and whilst we have looked after our existing clients admirably, it is apparent that our new business expectations for 2020 will not be met. We believe that much of the new business shortfall is a timing issue and thus expect it to come through in 2021, supporting our confidence in expected material growth in profit before tax for 2021.”

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