This is my first investment discovered searching for a net-net company =).
I began exploring this type of opportunity because it’s both intriguing and a fresh addition to my investment portfolio
I’m going to talk about Anexo Group PLC, a British company offering integrated credit hire and legal services:
- Credit Hire (EDGE it’s the name of the brand): This division provides replacement vehicles (cars or taxis) to individuals involved in traffic accidents that aren’t their fault. They supply a replacement until the customer’s car is repaired, with the costs ultimately covered by the at-fault party’s insurance.
- Legal Services (Bond Turner): This segment specializes in claims related to traffic accidents, personal injuries, medical negligence, and emissions litigation.
- Housing disrepair: A newer segment (still under the Bond Turner brand) introduced in 2019, which I’ll talk in more detail later.
Financial overview and Working capital
From 2018 to 2023, the company revenue grew at 21.5% CAGR, with EBITDA closely tracking at a 21.3% CAGR.
The core business revolves around credit hire, providing replacement vehicles (cars, motorcycles, or taxis) to accident victims, repairing damaged vehicles, and recovering costs from insurers. While this model is profitable, it is also cash-intensive. Anexo must cover the upfront costs of vehicles and repairs, then wait for insurance reimbursements.
In 2023, the receivable turnover ratio was 0.7x, implying an average collection period of 561 days. Even if we conservatively assume a shorter cycle say, 1 year it still represents a significant delay in cash recovery.
This dynamic creates a structural drag on working capital. Every year the need to finance receivables and fleet investments results in negative cash flow from operations and, consequently, negative free cash flow. The exception was 2023, when a £7.2 million net cash payment from Volkswagen related to the Dieselgate scandal, combined with improved working capital management (as noted in their transcript), provided a boost and a proved that the management want to improve WC turnover.
For this reason, I believe the company is trading at an unjustifiably low valuation. This is not a failing business, but one constrained by its working capital cycle. If management can address this bottleneck, the market could re-rate its shares significantly higher. The key question is: are there catalysts on the horizon to drive this change?
The 2023FY and 2024H1 interim results offer a hope. Revenue distribution across the company’s segments highlights both challenges and opportunities:
Credit Hire up 21.8% YoY compared to H1 2023, this segment remains the backbone of Anexo business. Steady growth here reinforces the core thesis of resilient demand. A key catalyst in this segment is the shift toward handling a higher percentage of motorcycle claims over cars, driven by lower working capital requirements and faster cash collection. But Housing Disrepair launched in 2019 following the Homes Act, this newer segment is a potential game-changer. Anexo estimates that 25% of UK renters could file damp-related claims, indicating a vast addressable market. Unlike credit hire, housing disrepair claims require minimal upfront capital relying primarily on legal expertise and client acquisition offering a faster payment cycle and improved cash flow dynamics.
In 2021 earning calls, the management told that cash collection for this segment are between 7 – 9 months which is better than 500+ days in average for the rest of the segment.
Valuation
If we examine the company’s balance sheet from the 2024 H1 interim results, we find the following:
- £243 million in trade receivables (a conservative estimate of future cash from claims)
- £3.1 million in cash
This suggests an upside potential of 89.64%, based solely on a snapshot of current assets and excluding future growth, which the company is likely to achieve given the nature of its business.
Conclusion
I’ve decided to include Anexo Group PLC in my portfolio. Does the company carry risks? Of course it does, including:
- Regulatory changes that could limit credit hire or housing disrepair claims
- Management’s potential failure to improve working capital or grow the housing disrepair segment
However, the margin of safety is substantial. We’re looking at a company trading below its liquidation value, with a history of growth, consistent dividend payments, and a promising new segment poised for expansion.
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I hold a material investment in the issuer’s securities.