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Evolution (EVG) – Finals PTP: £3.8m (£16.7m) Divi: 1.7p (1.3p)

Chief executive Alex Snow says the company could make an acquisition ‘in the next few months’, as the broker prepares to deploy its cash pile on distressed assets. The investment bank and private client wealth manager last week revealed that cash balances were up 38% at the December year end, to £122.7 million from £88.6 million in 2006. The broker has no debt so that is a net position.

Elaborating on the stated acquisition strategy, Snow, says: ‘It will definitely be UK, investment banks or fund management businesses... but we also tend to want to be in areas that other people want to get out of. The lending market, mortgages, securities, fund management, these are all areas where valuations are down 75-90%.’

2008 remains highly uncertain for all investment banks and brokers but, while describing current conditions as being like operating ‘over a canyon on a high wire’, Snow promises ‘we are going to get across’.

Analysts were reassured by last week’s cash position and, on the operational side, from the growing shift of revenues at Evolution Securities to recurring sources. The company classifies recurring revenues as those related to day-in day-out trading by its institutional clients, so commissions from equity and fixed income trading or from the market making operation. These revenues (now £35.8 million or 66% of Evolution Securities’ total sales) are much more predictable than fees earned from corporate advisory work related to fees earned from floats or secondary fundraisings.

Shares says: On PE of about 11 times versus most of peers on single digits the company is overvalued but strong cash position and acquisition potential make it a Hold.

by: Simon Keane