Schroders – Q3 Update

Share Price 2930p

Mkt Cap £9560m

Conflict Disclosure: No Holding

  • News No information on flows. Just a 9 month number confirming that AUM is now £451m, up 10.8% from £407m on 1 January. No commentary provided.  At the half year in June AUM was £444m so they are up 1.6% since then. In H1 the AUM rose 9.1% despite the company suffering net outflows. There would appear to be no reason to suggest this pattern of outflows and market gains has changed.
  • Estimates Pre tax of £548m is expected in the current year, rising 8% next year to £591m. EPS 196p, and 214p in 2020.
  • Valuation PER 15X, Yield 3.9%. Mkt Cap/AUM 2.1%
  • Conclusion There has to be better things for an active manager to own.  

River & Mercantile – FY Results

Share Price 250p

Mkt Cap £213m

Conflict Disclosure: No Holding  

  • Results Adjusted underlying PBT down 8.7% to £14.7m and EPS down 13.5% to 13.9p while AUM growth was 18% to £39.8bn.  Adjusted PBT was down 4.1% to £20.9m. The adjusted underlying number includes remuneration classified as “investment remuneration”, while it is stripped out of the adjusted number.  Management fees increased 2% to £65.6m while performance fees were £12.5m against £10.6m in the prior year. Within this Management fees of £55.5m on AUM were up 3% while advisory fees were down 3% to £10m. The narrative refers to the sharp increase in activity in fiduciary management that is occurring post the CMA review while (as confirmed by XPS) there is no growth in the advisory fee market.
  • Estimates The outlook guides to lower performance fees in 2020 and reducing the management fee guidance by 1bp to 14-15bps. However the phasing of the AUM growth towards the end of the year bodes well and the outlook is confident. Forecasts anticipate PBT of £18.8m. This compares to £20.9m adjusted or ££14.7m adjusted underlying, whichever we care to look at.
  • Valuation On existing forecasts the PER is 13.9X and the yield is 6.3% from a dividend 1.1X covered. PER 13 and yield 4.4%
  • Conclusion The investments into New York and Australia are set to continue and I sense this company is coming out of a period of investment. With buoyant markets in fiduciary management (albeit with fee competition) on the back of the CMA review requiring re tendering this company looks set to prosper over the next couple of year. If it traded on 18X it would be 320p.  

jeremy@charltonillingworth.co.uk

Funding Circle – Liquidity  

Share Price 98p

Mkt Cap £341m

Conflict Disclosure: No Holding

  • News It appears that Funding Circle has a liquidity problem. The information can be found on the FAQ section of their website. In September it took an average of 100 days to sell a loan and this increased to 124 days between 2 October and 8 October. Funding Circle also says “if you are joining the queue now it is likely your sale time will take longer”.  
  • Estimates Having achieved a £31m loss in H1 (£27m loss in H1 2018) from revenue of £81m the company looks on track to achieve the estimated ££171m revenues and £50m loss for the year. In H1 originations were up 14% and loans under management were up 37% to £3.5bn. With a queue of people trying to sell loans perhaps we should take the loans under management number as unrepresentative of the future.
  • Valuation 2X revenue is still a full valuation. The company has £270m cash but on top of that it has £33m of investments in its own loans and £147m bank debt on a revolving credit facility.
  • Conclusion This looks catastrophic for the model. The outlook at H1 results in August guided to 20% revenue growth. But when you are holding back the sellers it is possible to manufacture growth. In H1 £35m marketing spend drove an increase in originations of £149m of loans.  That looks like a model that doesn’t work.

Flow Trophy- Quarter to September  

  • Quarter Ashmore’s respectable update today with 2.4% net inflows mitigated by 2.3% negative market impact completes the reporting for the quarter enabling the hotly awaited award of the Flow Trophy which yet again goes to Liontrust, with net inflows of 4.6%. The general downward trend in flows over the last couple of years shows on the chart below. Competition for the wooden spoon was intense this period with Polar Capital pipping Jupiter and Premier at the post. The higher volatility of Polar’s flows also shows on the chart.
  • Estimates Average AUM over the first 9 months of the year is 7.4% ahead of prior year. Forecasts have been withdrawn on the merger with Premier. Prior to them being withdrawn forecasts anticipated 5% revenue increase to £29m for the year. In line.
  • Valuation PER 13 and yield 4.4% exclusing the special dividend which adds c 10% to the yield on the merger. Mkt cap/AUM 2%. Post the special dividend this will reduce to 1.8%.
  • Conclusion This stock is viewed as a play on the small cap market and these results suggest otherwise. With 27% added to earnings over 2 years post the merger there are reasons to be more excited.

News

An indecent amount of newsflow this morning for the Friday morning after the AIM dinner.

  • TP ICAP announces a £15m settlement with the FCA for not having proper controls in place and failing to act with due skill, care, and attention.  These FCA investigations go un announced until there is a conclusion and it seems likely that just now there are others going on at the moment.

Miton Group – AUM update

Share Price 55p

Market Cap £95m

Conflict Disclosure: I Hold

  • Update Net outflows of 0.8% is probably a better result than the share price has been anticipating. And the majority of that was from multi asset funds with equity funds having a small net outflow of £4m over the quarter. AUM was down from £4.72bn to £4.68bn over the quarter.
  • Estimates Average AUM over the first 9 months of the year is 7.4% ahead of prior year. Forecasts have been withdrawn on the merger with Premier. Prior to them being withdrawn forecasts anticipated 5% revenue increase to £29m for the year. In line.
  • Valuation PER 13 and yield 4.4% exclusing the special dividend which adds c 10% to the yield on the merger. Mkt cap/AUM 2%. Post the special dividend this will reduce to 1.8%.
  • Conclusion This stock is viewed as a play on the small cap market and these results suggest otherwise. With 27% added to earnings over 2 years post the merger there are reasons to be more excited.

Jupiter – AUM Update

Share Price 318p

Mkt Cap £1,455m

Conflict Disclosure: No Holding

  • Update Net outflows of 2.8% of AUM (£1.3bn) led to a decline of 1.8% in AUM to £45.9bn. £1bn of this was from the European strategy where Alex Darwall is leaving in mid November to set up a boutique.  
  • Estimates PBT fell 16% in H1. Full year forecasts anticipate a 14% reduction in profits for the year to £163m.
  • Valuation PER 10.9X and yield 7.5%. EV/AUM 2.5%
  • Conclusion While these numbers don’t read well there is valuation support. The shares recovered from the low of 290p at the beginning of the year.  We can’t be far from the darkest day for this share.

Man Group – AUM Update

Share Price 162p

Mkt Cap £2,481m

Conflict Disclosure: No Holding

  • Update Net outflows of $1.1bn in the quarter were 1% of AUM .Over the quarter AUM declines 1.5% to $112.7bn. Multi manager, absolute return and total return FUM all grew while systematic long only shrank 5% driven by redemptions from small cap and emerging markets strategies and discretionary shrank driven by redemptions from Japan and US equity strategies.
  • Estimates In H1 adjusted PBT was up 3% year on year against FUM which was up 5% delivering $157m PBT. FY estimate anticipates $183m in H2 which looks ambitious.
  • Valuation Per 10.8X Yield 4.5%. EV/AUM 1.9%
  • Conclusion We saw outflows from Japan with Polar and now Man Group. Small cap redemptions is also a feature of current increased liquidity and risk aversion. Man Group tends to perform in a risk on environment. It is hard to know when that may return. But the shares are cheap. Except the outflows are from higher margin products. We could see further downgrades before the bottom.

jeremy@charltonillingworth.co.uk

News

  • Oh dear. No happy faces today.
  • Nutmeg’s results have appeared at companies house which confirms there is no change in the strategy of buying AUM at uneconomic prices. The crowdfunding round in June valued the company at more than £250m.

Hargreaves Lansdown – Trading Statement

Share Price £18.16

Market Cap £8.6bn

Conflict Disclosure: No Holding

  • Update 1.7% net inflows in the 3 months to September has combined with a modest market tailwind to lift AUM 2.5% to £101.8bn. Revenue of £128m is 6% up year on year. The statement says a period of elevated investment in people, marketing and technology has been validated by net new business flows
  • Estimates Forecasts for the year to July 2020 anticipate 11.5% revenue growth year on year which will need an acceleration from the 6% reported in Q1.
  • Valuation PER 31X Yield 2.5%
  • Conclusion The Hargreaves model is now looking tired and expensive. With net flows in line with most wealth managers and the company referring to a period of investment as the 63% operating normalises so will the rating.

Polar Capital – AUM Update

Share Price 532p

Mkt Cap £513m

Conflict Disclosure: No Holding

  • Update No 3 months numbers reported today immediately raises suspicion. Net outflows over 6 months were £448m. With net inflows of £150m in the quarter to June this implies net outflows of £598m in the 3 months to September, which is 4.1% of AUM. AUM is now £14.7bn. Net performance fees accrued are £4.2m, down from £32.5m the year before. The Japan team has lost a fund manager and £400m of AUM while two long standing clients have redeemed £500m from the technology and healthcare fund.
  • Estimates No performance fees are in forecasts but the outflows may surprise today causing perhaps some downside risk to numbers
  • Valuation PER on existing forecasts 12.8X with a yield of 6.3%. EV/AUM 2.8%
  • Conclusion Earlier this year the shares were 450p. Given these are momentum stocks the shares could revisit that level.

Premier Asset Management – Trading Update

Share Price 176p

Mkt Cap £187m

Conflict Disclosure: No Holding

  • Update Net outflows in the quarter were 3.6% while AUM was down 2.7% to £6.56bn. Second quarter of outflows following 24 quarters of inflows. Merger with Miton now approved by shareholders expected to be effective 14 November.
  • Estimates The £18.5m PBT expectation for the current year is based on £7bn of AUM which looks a little toppy now the year has ended with AUM at £6.56bn.
  • Valuation Per 12.4X Yield 5.9%. EV/AUM 2.5%
  • Conclusion Not a great quarter but this won’t be about inflows while the company is undergoing a merger which creates 27% cost synergies. Hard to see any catalyst just now but as the synergies are delivered the shares may start looking extremely cheap.

Morses Club – H1 Results

Share Price 115p

Mkt Cap £151m

Conflict Disclosure: I Hold

  • Results Loan Book growth of 6.2% to £72.2m and revenue is up 15% to £66.3m. Impairments reduced from 21.9% revenue to 19% revenue while the cost base has increased from £18.7m to £29.5m resulting in a decline in operating profit from £11.3m to £8.1m. Adjusted EPS is down 10.6% to 5.9p.  Digital lending achieved £6.9m of revenue (2018 £0.3m) but lost £3.5m adjusted. Customer number were 52,000 with a loan book of £4m. Debt is £22.7m on equity of £70.3m and the company is renewing its financing which expires in August 2020.
  • Estimates Forecasts were anticipating a 9% increase in PBT to £21.7m this year. This will come down today. Adjusted PBT in H1 was £9.6m.  H2 is traditionally stronger with the Christmas period.
  • Valuation Adjusted ROE is 22.6%, down from 25.6% and the shares trade at 2.1X book value. PER pre downgrades is 8.5X and yield 7.2%
  • Conclusion The company is undergoing a transformation which requires investment.  The yield may support the shares in the short term but the market is unlikely to believe in the digital product until profits are delivered. Unlike Monzo.

jeremy@charltonillingworth.co.uk

News

  • Tungsten Chairman buys 474k shares at 42p.

Liontrust – AUM Update

Share Price 748p

Mkt Cap £410m

Conflict Disclosure: No Holding

  • Update Net Inflows of 4.6% and a negative market contribution gave a 4% increase in AUM over the 3 months to September to £14.6bn. That is an increase of 22% over 12 months, beating Impax.  Neptune acquisition was completed on 1 October adding £2.7bn AUM bring pro forma AUM to £17.4bn. This will dilute the economic advantage process from 48% AUM to 40% AUM and sustainable process from 32% AUM to 26% AUM.
  • Estimates 20% EPS growth is anticipated for the year to March 2020 to 55.9p, which is modest bearing in mind the accretion from the Neptune acquisition and the 20% underlying AUM growth. Currently Neptune is loss making but post £16m of reorganisation costs it is expected to be earnings enhancing from March 2020.
  • Valuation PER 13.4X and yield 4.3%. EV/AUM 2.8%.
  • Conclusion The shares are good value. Performance of the funds remains largely strong and with the new distribution for the Neptune funds and modest forecasts this feels a little like Jupiter IPO’s in 2010. Investors should not under estimate the influence of momentum in this business.

Alpha Financial Markets – Pre Close Update

Share Price 203p

Mkt Cap £210m

Conflict Disclosure: No Holding

  • Update Trading is in line with expectations with “progress” on a like for like basis.  The pipeline is reported to be “good”, despite uncertainty in political and economic environment.. The integration of Axxys, acquired in June is largely complete and it is reported to be performing to expectations.
  • Estimates None. Revenue in the year to March 2019 was £25m and PBT £3.2m.
  • Valuation PER 14.6X and Yield 3.4%.
  • Conclusion This is a high quality situation albeit perhaps not a secular growth market. Ultimately as fund manager fees come under pressure this will feed through. Though that is some years away yet. With £18m cash and the potential to make further acquisitions some strong accretive earnings enhancement can be anticipated over the next two years despits a modestly lacklustre statement this morning.

jeremy@charltonillingworth.co.uk