Hits: 11

6 March 2020

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AFH Financial  – AGM 

Share Price 364p

Mkt Cap £156m

Conflict Disclosure: No Holding

  • Statement The company says that following a period of consolidation it is now open to acquisitions again with a focus on smaller IFA’s and larger businesses where the advisers are employed of equity participants. The strong trading of last year has continued with trading in the first four months of the year with revenue and fund inflows continuing at the levels of Q4 2019 ( to October) levels.
  • Estimates Forecasts anticipate 17% revenue growth to October 2020. With the seasonality of the business making the early months of 2020 naturally busier revenue being flat on Q4 2019 is not perhaps hugely exciting.
  • Valuation PER 10.8X Yield 2.7%
  • Culture The significant management stake aligns interest such that the company shows relatively positively on most metrics.
  • Conclusion The shares are cheap and resuming acquisitions is a significant step forward.  I confess to remaining a little sceptical around their calculation of organic growth numbers historically.

10 January 2020

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AFH Financial – DB transfers 

Share Price 354p

Mkt Cap £151m

Conflict Disclosure: No Holding

  • Background There is increasing noise around DB transfers. The FCA are conducting a wide investigation of DB transfers while PI premiums are increasing sharply this year. Yesterday I came across a company set up specifically to harvest DB transfer claims rather like the PPI claims.  And yesterday a welsh IFA, Torch Wealth Management entered administration on the back of SIPP complaints. Harwood Wealth is in the process of going private while shareholders have been obliged to underwrite some of any potential liabilities.  While this is not good for anyone in the industry perhaps it is the regional IFA that may be more exposed, which is reason worry for AFH. While there is no suggestion that any improper transfers have been concluded the cost of defending claims can be high.    
  • Valuation PER 12.2X  October 2019 falling to 10.6X October 2020. Yield 2.3%. The shares have rallied 29% from their October lows on the back of a positive trading statement in November reiterating the company’s 5 year aspirations of £140m revenues and 25% EBITDA margins which is £35m EBITDA. The share trade at an EV/aspirational EBITDA of c 4.7X.
  • Conclusion The next few years are likely to contain more headwinds for the sector generally. It is hard to see a re rating for AFH against that background. Results to October 2019 are awaited.

8 November 2019

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AFH Financial – Trading Update

Share Price 275p

Mkt Cap £118m

Conflict Disclosure: No Holding

  • Update Revenues for FY to October expected to be £74m. EBITDA expected to exceed £17m and FUM reached £6bn in October. Despite the new focus on organic growth the board remains confident of the aspiration of £140m revenue and 25% EBITDA margin (£35m). Cash is £11.9m.
  • Estimates  I am looking at a consensus forecast of £79.3m revenue so results look a little shy of forecast and EBITDA expectation was £17.7m so “in excess of £17m) may also be a little shy.
  • Valuation PER 9X and yield 3%
  • Conclusion The shares have fallen back 34% from their highs. It is always difficult to move from a strategy of acquisition to organic growth. Historically this has often resulted in slowing organic growth. There are also reports of high staff turnover at AFH. The shares are cheap and the statement is upbeat but there could be some growing pains going on underneath.  It may take 12 months until we get pure organic like for like numbers and until then there are some risks.

17 October 2019

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DB Pensions

  • FCA reviews I am hearing from a number of places that advisers who have advised on BD pension schemes are now being required to review all their cases by the FCA. I am also receiving many twitter adverts from companies titled “You may be due compensation” if you have transferred out of your DB pension suggesting the ambulance chasers have now got their teeth into the space. Quilter was questioned yesterday because Lighthouse had the affinity relationship with the steel workers union and was therefore at Port Talbot advising the British Steel workers. Quilter refused to comment.
  • Implications The worst case scenario will be that some companies have behaved irresponsibly though it would seem unlikely that this is the case for the quoted financial planning companies. However, the best case scenario is increased costs from performing review.  On top of this PI insurers are increasing the costs sharply for advisers who conduct DB pension advise, and in some cases refusing to provide this cover. 
  • Conclusions: Struggling to see who the winner is here but it is not good for the quoted financial planners. Useful that AFH have now slowed down their acquisitions then. I suspect there is more to come.

30 September 2019

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AFH Financial – Business Update 

Share Price 276p

Mkt Cap £118m

Conflict Disclosure: No Holding

  • Update The company confirms current trading is strong with double digit gross inflows and 2% outflows. It re iterates its target of £10bn AUM, £140m revenue and 25% underlying EBITDA margin, which equates to £35m EBITDA. Perhaps the most significant part is the clear statement “ the Company does anticipate requiring any additional funding from the equity market in the foreseeable future”
  • Estimates To 31 October 2019 £17.7m PBT and £17.9m EBITDA is anticipated. 30.5p EPS
  • Valuation Adding the £15m convertible to the market cap we get EV/EBITDA of 7.4X.  If we take the medium term target of £35m EBITDA we get 3.8X. Current PER 9X, yield 3%
  • Conclusion Both Harwood and AFH have fallen as the market has fallen out of love with them.  On the current valuation I am hard pushed to see the downside. Particularly as the company has committed to print that no equity issuance is anticipated.