Cambria Africa plc (AIM:CMB), a GBP£4.14M small-cap, operates in the capital markets industry, which has recently been facing serious existential threats resulting from potential disintermediation and disruption from new technology. Financial services analysts are forecasting for the entire industry, negative growth in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the UK stock market as a whole. Today, I’ll take you through the sector growth expectations, as well as evaluate whether Cambria Africa is lagging or leading in the industry. Check out our latest analysis for Cambria Africa
What’s the catalyst for Cambria Africa’s sector growth?
The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. Over the past year, the industry saw growth in the twenties, beating the UK market growth of 11.51%. Cambria Africa lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Cambria Africa may be trading cheaper than its peers.
Is Cambria Africa and the sector relatively cheap?
The capital markets sector’s PE is currently hovering around 18x, in-line with the UK stock market PE of 18x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 12.94% on equities compared to the market’s 12.77%. Since Cambria Africa’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Cambria Africa’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Cambria Africa recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Cambria Africa as part of your portfolio. However, if you’re relatively concentrated in capital markets, you may want to value Cambria Africa based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If Cambria Africa has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the capital markets industry. Before you make a decision on the stock, take a look at Cambria Africa’s cash flows and assess whether the stock is trading at a fair price.