Peel Hunt Limited (PEEL) — Investment Research Note

Executive summary

Peel Hunt is a UK-focused mid-cap investment bank offering Investment Banking (M&A + ECM), Execution Services (market-making) and Research & Distribution, listed on AIM since September 2021. Across the past five reporting years the business has swung from a peak-cycle FY22 (revenue £131m, PBT £41m) through a three-year trough (FY23-FY25: three consecutive small losses) to a decisive rebound in FY26 (revenue £143.5m, PBT £21.1m, adj. PBT £32m) driven by record Investment Banking on the back of an M&A-led franchise 2026-06-15 FY26 results. The single most important point for valuation today: at 95p the shares trade almost exactly at 93.8p net tangible book with £36.9m of cash and only £10m of debt, so the market is effectively paying nothing for the £24m post-tax earnings power of a normalised year and less than 5x adj. earnings on FY26 actuals.

Fair value estimate

Methodology: blended sum of a through-cycle P/E and NAV floor. UK broker/IB peers routinely trade close to book in weak markets and 8–12x on stabilised earnings.

Assumptions:

• Through-cycle revenue anchored around £100–110m (5-year avg of £107m); adj. PBT of £12–15m (5-year adj. PBT avg ≈ £11m, but tilted by trough years).
• Post-tax normalised earnings £9–12m → 7.8–10.4p EPS on 115.6m shares.
• Fair multiple of 10–12x → 78–125p from earnings basis.
• NAV of 93.8p (£108.5m/115.6m) sets a hard floor given quality of balance sheet (£36.9m cash, £27m net cash, regulator-supervised own-funds coverage 398%).

Fair value range: 95p – 125p per share → implied mcap £110m – £145m. Mid-point: 110p / £127m. Current market cap £109.8m (95p). Upside to mid ≈ 16%; upside to top ≈ 32%; downside to low ≈ 0%.

Sector context

Classification confirmed: Financial Services — mid-cap UK investment banking / broking. Quality profile (net cash, clean disclosure, IFPR-supervised regulatory capital, no goodwill on balance sheet) is above the typical AIM-listed peer. Growth is highly cyclical to UK ECM/M&A conditions. Listed peers: Cavendish (formerly Cenkos+finnCap), Panmure Liberum (private post-merger), Zeus Capital (private). Numis is now part of Deutsche Bank so a like-for-like listed comp set is thin — Peel Hunt is arguably the last quoted pure-play UK mid-cap broker of scale.

Investment thesis

• Genuine operating leverage just demonstrated: FY26 revenue +57% delivered adj. PBT of £32m vs. £0.8m the prior year — a ~40x adj. PBT swing on a 50% revenue move, with adj. compensation ratio dropping 800bps to 48.7% and average headcount down 10% year-on-year 2026-06-15 FY26 results. Cost base is now materially leaner (£5m of fixed cost taken out).
• Cheap on both asset and earnings basis: 95p ≈ 1.01x NAV; 4.6x adj. EPS on FY26; ~£27m of net cash inside a £110m mcap. Dividend reinstated at 4.9p (~5.2% yield). Nothing in the price requires an ECM recovery to be right 2026-06-15 FY26 results; 2025-12-01 Interim.
• Franchise momentum: 62 FTSE 350 clients (record), average client market cap now £1.13bn (+30% YoY, doubled in 3 years), ranked #3 in UK public M&A behind only global bulge brackets, most active bank in UK ECM in H1 FY26 with ~17% share 2025-12-01 H1 FY26; 2026-06-15 FY26. As UK IB consolidates (Numis, finnCap+Cenkos), Peel Hunt is a share-taker.

Key risks

• Deep cyclicality of revenue: three consecutive loss-making years (FY23-FY25) followed by a boom year illustrates how binary the business is to UK capital-market conditions 2025-06-16 FY25 results; 2026-06-15 FY26. The FY26 outlook already flags renewed inflationary pressures and volatile rate expectations weighing on activity 2026-06-15.
• Structural de-equitisation of UK markets: management repeatedly cite a shrinking pool of listed UK companies as an existential headwind and are lobbying for regulatory reform to reverse it 2025-06-16, 2023-06-16. If takeovers continue to exceed IPOs the addressable client universe erodes.
• Retention & comp ratio pressure: adj. compensation ratio still 48.7% and variable pay accrues to profit — a portion of the FY26 upside was recycled into higher variable comp. Talent competition from consolidating peers and global banks caps sustainable operating margin 2026-06-15; 2025-06-16.

Operating leverage

The business has a high-fixed-cost profile — approximately £109m of adj. admin costs in FY26 against £143.5m of revenue. Non-staff costs (rent, technology contracts, regulatory, professional fees) of ~£39m are essentially fixed and grew only 2% YoY on 57% revenue growth 2026-06-15. Staff costs are semi-fixed: base salaries + benefits scale with headcount (~265 at year-end), while variable comp scales with profit but on a lag and with retention constraints. The observable drop-through: on a ~£52m revenue increase FY25→FY26, adj. PBT rose ~£31m — a ~60% incremental contribution margin. Applying that mental model, another 10-20% revenue beat (to £158–172m) would plausibly add £15–25m of adj. PBT, potentially doubling adj. earnings, and Execution Services in particular benefits from technology-driven fixed-cost scale (PHAT platform) 2026-06-15; 2025-12-01. However, some of that leverage is real and some is optical — variable comp true-up would reclaim part of any upside surprise for staff, so the actual shareholder capture is lower than a pure software business.

Value-trap signals

• Structural de-listing trend in UK small/mid-cap universe — company itself flags this as material.
• Three consecutive loss years post-IPO 2021 despite an "IPO-supported growth" story.
• Reversal of dividend (none in FY23/FY24/FY25) before reinstatement in FY26 — indicates the payout is discretionary and cycle-linked.
• IPO'd in September 2021 at 228p; now 95p, so the stock has already been re-rated down materially — investors should ask whether "cheap" is cheap-for-a-reason.

Earnings vs. expectations

• Feb 2022 profit warning: "revenue marginally below the bottom of the previously guided range… earnings commensurately lower than current market expectations" — clear MISS 2022-02-23.
• FY23 (Jun 2023): revenue £82.3m "in line with revised market expectations", LBT £1.5m — MISS vs. original expectations, in line with reset.
• FY24 (Apr/Jun 2024): revenue ~£85.5m/£85.8m "in line with market expectations"; loss "broadly in line with market expectations" — IN LINE.
• FY25 (Apr 2025 pre-close): "smaller loss before tax than market expectations"; H1 FY26 (Dec 2025) "confident in meeting market expectations" — small BEAT then IN LINE.
• FY26 (Jun 2026): record IB result, adj. PBT £32m vs. £0.8m PY — clear BEAT of any conservative forecast.

Pattern: significant misses through the 2022-2023 downturn, stabilised to in-line/small-beat through the trough, then a material beat as the M&A cycle recovered. Consistent with cyclical operating leverage rather than management sandbagging.

Conviction

3 (moderate). Anchored by: (i) clean, well-audited financials with no goodwill or acquisition accounting distortions; (ii) tangible NAV that provides a hard floor at ~94p; (iii) demonstrable FY26 operating leverage that repeats a recognisable historical pattern. Limited by: (i) severe revenue cyclicality means through-cycle earnings power is a wide range; (ii) peer comparability is weak (Numis private, Cavendish restructuring) so multiple-based cross-checks are unreliable.