How Finncap weathered the General Election and Scottish referendum storms

 
Michael Bow
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Finncap chief executive Sam Smith
If a week is a long time in politics then nine months is an age – especially for City broker Finncap. The run-up to Scotland’s referendum in September and the run-in to May’s general election was the noisy backdrop for much of Finncap’s financial year.

Despite a severe dampening of animal spirits across the Square Mile in 2014/15 the group seems to have shut out the noise.

The firm, led by chief executive Sam Smith, today revealed a record haul in deal fees and record revenues for the year ending 30 April – a performance brought into sharp focus by the fluid political backdrop.

And with political certainty flowering again in the wake of last week’s election, Finncap is betting that City boardrooms will soon be humming with corporate activity.

“We’ve definitely seen the pipeline improving, even in the last week,” Smith said.

“The markets are open again, there’s activity and institutions are wanting to do things. People are much more positive and know where they are and they can get on with things.

“There was a huge uncertainty from corporates [during the election]. People underestimated how uncertain things were for them, to the point that people were thinking about a change in jurisdiction. That does take your mind off other things.”

Despite these headwinds, Finncap has clinched a healthy set of full year numbers.

Fees paid for corporate work such as M&A activity and fundraisings rose 22 per cent to £7.2m while retainers – money paid for secondary trading flow and corporate work – also rose 11 per cent to £4.6m from £4.2m last year.

Overall revenue growth slowed from the 36 per cent rise posted last year but it still grew, up four per cent at £16.1m from £15.5m last year.

“It’s been a difficult period so we’re pretty pleased to have had record revenue,” Smith said. “With that backdrop it bodes quite well for next year because we’ve got a really good base now to grow our client numbers. We think our cost base is one of the lowest in the sector so we’re pretty well positioned for a flat market but very well positioned if the market starts getting more interesting.”

The post-financial crisis world has not been kind for many brokers. Consolidation is rife and competition for clients is still fierce and this scramble for talent and resources is etched into Finncap’s bottom line this year.

Profit before tax fell from its record high last year, from £2.4m to £2.2m, predominately due to a senior hiring spree at the group.

The company won a licence earlier this year to offer services to so-called premium members of the London stock exchange – typically FTSE 350 firms – giving it full sponsor status. This has driven the recruitment of more senior staff.

It poached the founding partner of Cenkos Securities’ growth companies team Christian Hobart to join institutional sales, and recruited former Canaccord Genuity corporate broking director Tim Redfern to its broking division.

“We want to drive service levels all the time so we have added to senior hires, which we wouldn’t have done in an ordinary year,” Smith said.

“We will probably try and focus this year on attracting more fully list clients, so that’s part of the reason we recruited senior people who have that capability and contacts with fully listed corporates.”

The company, which caters for small and medium sized firms, is one of the best barometers of market activity among smaller listed firms – it currently has the largest number of clients listed on the alternative investment market and is one of the biggest brokers by clients on the London stock exchange.

It added well known companies to its roster this year, including Hollywood actress Mila Kunis’ favourite diamond miner Gemfields, software firm Wandisco and self storage group Lok ‘n’ Store, winning mandates and helping keep it on top for client numbers.

“It’s all about gaining market share and doing things across the board well. But in a tricky market we’re taking market share,” Smith added.

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