Regulatory Demand And RegTech Platform Will Support Modest Earnings Improvement Ahead

Catalysts

About Wilmington

Wilmington provides governance, risk and compliance focused data, training and RegTech services across regulated markets.

What are the underlying business or industry changes driving this perspective?

• Although regulation in areas such as financial crime, health and safety and data protection continues to tighten, Wilmington’s shift away from higher-growth U.S. healthcare events into a smaller, more focused schedule risks capping top line growth and keeping group organic revenue momentum subdued, limiting revenue expansion.
• Despite structurally rising demand for digital compliance infrastructure and the rollout of the single RegTech platform and AI tools across several brands, integrating newly acquired HSE businesses and Conversia onto common processes could drag on efficiency gains and delay margin accretion, constraining net margins.
• While recurring and repeat revenues already form a high share of the portfolio and should benefit from ongoing regulatory-driven training and certification needs, the disposal of FRA and exit from a large U.S. market may reduce diversification and increase reliance on a smaller set of end markets, adding volatility risk to earnings.
• Although data privacy obligations for SMEs in Europe are expanding rapidly and support Conversia’s addressable market, execution risk in scaling its sales engine, maintaining low churn and managing earn out obligations could temper the expected double digit growth contribution, moderating group revenue and EBITDA growth.
• While cloud-based and AI enabled RegTech solutions should structurally lower delivery costs over time, Wilmington’s decision to expense most technology investment through the P&L rather than capitalize it, combined with higher interest expense from the new debt facility, may offset operating leverage and restrain earnings growth.

Assumptions

This narrative explores a more pessimistic perspective on Wilmington compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Wilmington's revenue will grow by 17.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 11.4% today to 13.1% in 3 years time.
• The bearish analysts expect earnings to reach £21.3 million (and earnings per share of £0.23) by about December 2028, up from £11.6 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as £29.2 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 16.1x on those 2028 earnings, down from 23.2x today. This future PE is lower than the current PE for the GB Professional Services industry at 19.2x.
• The bearish analysts expect the number of shares outstanding to decline by 0.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.27%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Continued portfolio reshaping into higher-growth, regulation-driven niches such as health, safety, environmental and data privacy, exemplified by Astutis, Phoenix and Conversia, could sustain or accelerate the current mid-teens compound revenue growth rate. This may lead to a structurally higher revenue base and support a rising share price driven by top line expansion.
• The increasing share of recurring and repeat revenues, already at 80% of ongoing revenue and moving into the 40% range for strictly recurring alone post Conversia, may steadily improve earnings visibility and justify a higher valuation multiple. This could drive growth in both earnings and the share price over time.
• Successful integration and scaling of the Wilmington RegTech platform, alongside AI enabled products and SaaS style deployments for large enterprise clients, could unlock operating leverage, push group margins back above 30% and expand adjusted profit before tax. This may support faster earnings growth than currently implied in a flat share price view.
• Disciplined capital allocation that combines cash generative operations, strong profit to cash conversion and a new multi year debt facility aimed at accretive GRC acquisitions could compound returns from acquisitions like Conversia. This may lift earnings per share as well as the market rating applied to those earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Wilmington is £3.2, which represents up to two standard deviations below the consensus price target of £4.52. This valuation is based on what can be assumed as the expectations of Wilmington's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £5.14, and the most bearish reporting a price target of just £3.2.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be £162.9 million, earnings will come to £21.3 million, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of £3.0, the analyst price target of £3.2 is 6.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.