Cenkos’s Durkin bows out for good amid changing landscape

Jim Durkin will next month leave the City for the second time. After trying to retire three years ago, he made a surprise comeback as chief executive at Cenkos Securities during a period of turmoil for the London broker. But this time, he said, his departure would be final.

The Croxteth-born Liverpudlian has spent 40 years in the City’s clubby small-cap broking industry. He has seen it evolve from bowler hats and paper-based trading when he began as a trainee analyst at stockbroker Simon & Coates to a sector now grappling with an uncertain future. Tighter regulations and the growing financial clout of large US investment banking rivals are reshaping its competitive landscape.

“I came back to calm things down,” Durkin said in an interview. “I am now 61 and have been at it since I was 21. We are still waiting for regulatory approval [for my replacement] and then I’ll head off into the sunset.”

Durkin is confident that Cenkos is now in a position to prosper. Despite London’s stock market underperforming its booming US counterparts and a lack of big tech stocks, brokers have profited from equity raising activity as companies shored up their balance sheets during the pandemic. There has also been a resurgence in initial public offering activity. 

Durkin expects the UK to follow the US with more special purpose acquisition company transactions as investors seek to build “war chests” to buy companies with balance sheets weakened by the pandemic. 

Rules governing the stock market should be eased to allow more of these sorts of deals, he added, pointing to a government review of listings that is due to report in coming weeks.

Durkin still owns a 9 per cent stake in Cenkos. He was a founding shareholder and then chief executive of the brokerage between 2011 and 2017.

During this period, and in his years before at rival Collins Stewart, he proved a stalwart adviser to small companies, helping raise more than £21bn in equity at Cenkos.

There were bumps along the way. In 2016, Cenkos was fined £530,500 by the UK’s financial watchdog over failings relating to its work for Quindell, the scandal-hit white-label company.

9%


Founding shareholder Jim Durkin’s current stake in Cenkos Securities

Durkin describes the broking industry as “putting ideas with capital”, saying that the equity markets have been proven to be the best place for small businesses to find finance.

But many in his network have now retired, according to one investor who has worked with Durkin at Collins Stewart and Cenkos.

“He is a good institutional salesman but a lot of his clients have now retired and running a business involves an entirely different skill set,” the person added.

Durkin agrees that the City has “changed dramatically” in the decade since the 2008 financial crisis. Not all has been for the good — he is concerned about how the introduction of Mifid II regulations in 2018 has hit independent research.

These rules have also damaged the broking industry, forcing firms to charge separately for investment research, rather than bundled with trading, which throttled a lucrative revenue stream.

Against this challenging backdrop, Cenkos and its British broker peers have also been fighting against bigger US investment banks for positions on IPO advisory lists.

Durkin is critical of the role sometimes played by these larger rivals. “When I see large deals being done by seven banks, I ask who is taking responsibility? Who is caring about the price at which the deal is done? [But] you don’t get sacked for appointing Goldman Sachs.”

Durkin regrets not being able to win mandates for Cenkos on more of the bigger ticket IPOs, although it enjoyed a purple patch of larger flotations during the past decade. 

Cenkos worked with Bob Mackenzie, executive chairman of AA, on the flotation of the group in 2014. The IPO has since been under scrutiny for leaving the company saddled with almost £3bn of debt, leading to the buyout by private equity this year.

Durkin does not regret the work on the AA float, saying that at the time it was a good prospect. “It was carrying a level of gearing but also a very reliable source of free cash flow.”

The AA was also one of a number of IPOs where Cenkos worked with Neil Woodford, who left Invesco in the same year to set up his own investment firm that invested in the breakdown recovery group’s flotation. Woodford Investment Management imploded in 2019 while still holding assets worth £3.7bn on behalf of more than 300,000 investors.

When I see large deals being done by seven banks, I ask who is taking responsibility? Who is caring about the price at which the deal is done?

Woodford was seen as close to Cenkos given his longstanding relationship with Paul Hodges, a founder shareholder of the broker and head of its equity capital markets team. Cenkos brought to market several Woodford-backed groups, including biotech firms Verseon and Abzena. 

Woodford also invested in Eddie Stobart Logistics, the transport group that Cenkos helped float before Durkin took his first leave as chief executive. Eddie Stobart is now, too, in the hands of private equity after an equally debt-laden stint on the public market.

Durkin said that Woodford, who is now planning a comeback, was “an important client but never a massive part of the business”, and only ever accounted for a “low single-digit” amount of the money Cenkos raised every year during that period.

He added: “Neil was supportive of some of our deals but no more than any other broker. He had a lot of money and did a lot of deals.”

Durkin started in the City in 1981, and has since “seen several crashes, several asset bubbles”. Global equity markets are booming right now. There are still bargains among listed companies in the UK, he added, but investors need to be selective. 

His return to Cenkos in 2018 followed a boardroom shake-up and a sharp fall in profits. Latest figures for the six months to June 30 show that Cenkos recorded a profit of £750,000, up from a loss of £200,000 in the same period the previous year. It had £22.4m in cash, up from £14.7m.

Cenkos, said Durkin, was looking cheap, trading at a market capitalisation of just £34m. While he predicts further M&A among rival brokers, he said that Cenkos could stand on its own. “We are very undervalued at the moment. The market is not assigning any real value to us — I think that’s wrong.”