Noble launches Professional Services Index
23/03/2009
London, UK – An index of professional services firms listed on the London Stock Exchange, the first of its kind, has been launched today by Noble and the Managing Partners’ Forum (MPF). The MPF Professional Services Index (‘the Index’), compiled by Noble, seeks to build the profile of the professional services industry as an investment opportunity. In total, the Index has a valuation of £3.9 billion*.
The launch of the Index introduces a new dimension to an ongoing MPF campaign to highlight barriers to professional firms engaging with external investors. MPF believes that an inefficient aftermarket has resulted from listed professional firms being allocated across multiple sectors. MPF is therefore encouraging the investment community to recognise the professions as a standalone industry group; allocate analysts to cover the professions to tackle the current lack of dialogue; and create funds to invest in this highly attractive sector, using the new Index as a benchmark.
The Index is designed to enable investors, funds, analysts and firms themselves to track and compare the relative performance of listed UK professional firms, a growing yet invisible industry group. Currently spread across multiple Industry Classification Benchmark (ICB) categories in the FTSE indices (such as support services, real estate and media), it has hitherto been impossible for appropriate comparisons to be made by the investment community.
There are 70 professional services organisations listed on the London Stock Exchange Full List and AIM, according to criteria devised by the MPF as to what constitutes a professional services organisation. For the purposes of the Index, firms that operate in financial services or with a market capitalisation of below £20 million or above £1 billion have been excluded, resulting in a final list of 35 constituent firms. The Index will be published monthly, with company additions/deletions occurring calendar quarterly.
Using historic data, the Index has outperformed the FTSE AIM 100, but shows more volatility than the FTSE 350 Support Services and FTSE 350 (excluding investment companies) indices. Over the period the Index has seen strong performance from Tenon and Redhall Group.
Giving greater visibility for the professions, it is hoped that the new Index could consistently outperform superficially comparable indices.
Sir Nigel Knowles, Chair of the MPF and Joint CEO of international law firm DLA Piper, commented:
“For a sector that’s worth 8% of the UK economy, professional services is almost invisible to the investment community. Yet many professional services businesses are working in areas which are ripe for growth, driven by regulation and increasing complexity. These provide compelling reasons for investment.
“A Professional Services Index will help remedy the barrier to investment brought by a lack of visibility. The Index helps these companies to be analysed as a coherent group. We hope that it is the first step towards a more robust and dedicated approach by investors and analysts to this sector.”
Alex Magni, Head of Research at Noble, commented:
“The firms in the Index share characteristics and ways of operating, which are very different to their peers in whichever FTSE industry classification they find themselves. Yet the price/earnings ratio for these companies varies hugely, and professional firms are still looked at by analysts in different sectors. The Index may help to overcome this inertia and capture the imagination of fund managers.
“Currently, there are no specialist funds dedicated to professional services firms. But that could change, particularly with an index as a benchmark. Even in challenging market conditions, professional firms are fairly resilient. With a diversified set of services in demand at all stages of the business cycle, they present a good investment option. As it’s quite likely more professional firms will choose a stock exchange listing in the future, it makes sense for this sector to be understood as a composite group.”
Non-listed firms looking for insight on life as a listed professional services company should contact Richard Chaplin at the Managing Partners’ Forum (richard@pmint.co.uk) or John Llewellyn-Lloyd at Noble (john.llewellyn-lloyd@noblegp.com).
ENDS
For more information contact:
The HeadLand Consultancy:
Joanna Trezise jtrezise@headlandconsultancy.co.uk 020 7367 5234
* Source: Professional Services Global Competitiveness Group (PSGC), supported by a joint secretariat provided by HM Treasury and the City of London Corporation. In 2007, professional services accounted for 8 per cent of UK output, which was the largest share of all the sectors, and for 11.5 per cent of employment.
** The Index valuation of £3.9 billion was calculated and correct on 3 March 2009.
MPF definition of a professional services firm
MPF defines professional services firms as:
“Organisations whose products and services are based on professional expertise rather than on discrete products or commodities.”
To qualify, 80% of an organisation’s core business activity must require specialist knowledge of a subject, field or science, and satisfy at least four of the following six criteria:
· Involves higher level education and usually a formal qualification.
· Regulated by a professional body, licensing authority or similar.
· Has an ethical code of practice.
· Does not derive significant financial benefit from service or product providers that are recommended.
· Services can be infrequent, technical or unique.
· Selection is usually based on a mix of skill, knowledge, reputation, ethics and creativity.
Methodology
The Index is calculated by Noble using a base-weighted aggregate methodology, so the level of the Index reflects the total market value of all component companies relative to a particular base period. Total market value of a company is determined by multiplying the price of the stock by the number of common shares outstanding. An indexed number is used to represent the results of this calculation in order to make the value easier to work with and track over time.
In practice, the calculation of the Index is computed by dividing the total market value of the components by a number called the Index Divisor. By itself, the Divisor is an arbitrary number. However, in the context of the calculation of the Index, it is the only link to the original base period value of the Index. The Divisor keeps the Index comparable over time and is the manipulation point for all Index Maintenance adjustments.
Further details on how the Index will be maintained can be found on page 8 of the accompanying report, The MPF Professional Services Index Report or by contacting Matt Wilson on matt.wilson@noblegp.com / 020 7763 2200.
About Managing Partners’ Forum
Founded in 1995, the Managing Partners’ Forum is the premier association for those involved in the management of professional firms throughout the world. As well managed firms are more profitable and attractive to clients, the MPF actively campaigns for excellence in management.
We find that fee earner attitudes often result in insufficient priority being devoted to management. To help alter attitudes in favour of management, the MPF highlights issues that stand in the way of effective management and campaigns through a combination of: hard-hitting reports and surveys; articles in the media; rigorous awards; well-attended events in cities worldwide; and extensive knowledge-sharing.
About Noble
Noble is a research-led independent Anglo-Indian investment bank dedicated to mid- and small-cap companies. It provides a full range of services to companies, institutions and investment vehicles, with offices in London, Edinburgh and Mumbai.
Noble publishes high quality fundamental research on more than 170 companies in UK and India.
In investment banking, Noble acts as sponsor, takeover adviser and broker on AIM, sponsor and broker on the LSE main market and adviser on Plus.
Noble has five operating companies in the UK, covering Investment Banking, Investment Management and Growth Capital, all of which are authorised and regulated by the Financial Services Authority.