One to Watch: Change to Evolution

EVOLUTION is a financial services group that operates two key divisions: its securities arm earns trading and commission revenues for equities and fixed income trading and provides investment banking services; and its private wealth management arm runs a number of funds for investors and has more than 4 billion of assets under management.

Following a challenging end to 2008, performance has improved steadily. Evolution is hiring more senior personnel to expand its securities division in both the UK and internationally, which will help drive further revenue growth. During the year, the fixed income and equities businesses have established more than 300 new institutional client relationships.

Profitability is further developed in the fixed income business where issuance and reduced competition have bolstered revenues.

Private wealth management has also held up well during 2009 and saw net fund inflows of more than 100 million in the third quarter. This division is still undergoing the process of integrating the 2008 acquisition of Singer & Friedlander's private wealth management unit and has also had to deal with the one-off costs of opening an office in Edinburgh. Following this, we expect margins to return to a more normalised level and provide a boost to Evolution's earnings.

Evolution currently trades on an estimated 2010 PE of 13x, which we believe does not fully reflect the potential for both revenue growth and margin enhancement within the company. The company is currently debt-free and this will allow Evolution to either pursue further acquisition opportunities or accelerate its own organic revenue growth through expansion into new business areas or geographies.

This article is for information and discussion purposes and does not form a recommendation by the manager to invest or otherwise.

Wolfson

133.25p -0.25p

Broker says UNDERPERFORM

ALL three semiconductor makers covered by Seymour Pierce – CSR, Imagination and Wolfson – could have "a good year".

But Evolution added: "We are of the view 2010 could be a good year for these companies but that, for Wolfson, the good news, if and when it does materialise, could take longer to come through."

Premier Oil

1,209p +50p

Broker says BUY

NUMIS has reiterated its "buy" rating on Premier Oil after the company signed an agreement with Serica Energy to fund an exploration well in the North Sea.

The broker added: "There is no change to our positive view on the stock, and we see minimal downside with the shares trading close to our core valuation."