Hits: 15

8 June 2020

Quilter Plc – DB and the FCA

Share Price 143p

Mkt Cap £2,691m

Conflict disclosure: No Holding 

  • Investigation Following the FCA’s banning of contingent charging for DB transfers on Friday Quilter confirmed that the FCA has required a s166 investigation for the Lighthouse subsidiary. Lighthouse was the preferred provider of advice for the steel workers union at British Steel.
  • Numbers So far Quilter has provided £12m for compensation on DB transfers. This is £9m relating to 30 complaints (£300k each) received plus another £3m for further claims. Lighthouse advised on 300 transfers for British Steel. Potentially the provision could be far higher when the other 270 transfers are investigated under S166.
  • Valuation On a historic basis the shares trade on 16.7X and prospective 23X. On Friday the shares where up 4.6%. 
  • Conclusion When Rathbone and Brewin trade on 17X current year PE the valuation of QLT doesn’t appear to take account of the risks.

21 April 2020

Quilter – Q1 Update

Share Price 115p

Mkt Cap £2,163m

Conflict Disclosure No Holding

 

  • Results Net inflows 0.5% and market losses of 14.1% reduce AUMA from £110.4bn to £95.3bn

 

  • Valuation PE (on current forecasts 17.5, Yield 4.1%)

 

  • Conclusion I worry about the growing band of claims companies impact on this company more than any other.

11 March 2020

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Quilter- FY Results 

Share Price 132p

Mkt Cap £2,715m

Conflict Disclosure: No Holding

  • Results Excluding the life business adjusted PBT is up 3% to £182m. EPS down 3% to 8.6p on the back of a normalised tax charge. AUM up 13% to £110.4bn. Margin stable at 26%. Integration of Lighthouse is said to be progressing to plan. Outlook says “notwithstanding short term market sentiment” they are optimistic.
  • Estimates 9.5p of EPS for Dec 2020 is an 11% uplift from the 8.6p just delivered. This looks too high in today’s market.  
  • Valuation PE 13.9, Yield 3.8%
  • Conclusion The company has lower client retention that most at 90% on platforms and 81% for advice and wealth management which is a concern. Lighthouse was the adviser of choice at British Steel, increasing the claims risk. This is one to pass by at a reasonable distance.  

23 January 2020

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Quilter Plc –  Lighthouse 

Share Price 165p

Mkt Cap £3,164m

Conflict Disclosure: No Holding

  • News Quilter has reached recent highs on the back of stories that Warburg Pincus have held preliminary conversations about taking the firm private at a level a little below the current price. While this week the FCA sent a “Dear CEO” letter to financial advisers regarding behaviour over pension transfers. So its not ideal timing for Lighthouse, who had a network of c 400 advisers to admit to making a “minor technical error” while advising the steelworker to transfer out of their pension.
  • Valuation Current year PE is 16.4X and yield 3% though the shares are cum a £375m return of capital which is c 20p/share. £167m PBT is expected in 2020 which is c 53% advice and wealth and 50% platforms once life assurance is excluded. That looks full to me when I can buy Rathbone on a PER of 15.2 at the moment (cheaper than Brewin)
  • Conclusion Quilter acquired Lighthouse for £46m last April and with the FCA limbering up for some pension scalps it could turn out to have a negative value. Harwood Wealth, which also had a network recently went private at a discount to the screen price. I suspect Warburg Pincus should be nurtured fully. The only certain thing would seem to be Quilter shares are too high.

5 August 2019

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Quilter – H1 Results & Sale of Life Business  

Share Price 140p

Mkt Cap £2663m

Conflict Disclosure: No Holding

  • Results & Sale. Quilter reports 5% growth in PBT to £115m and the sale of the Life business for £425m cash to ReAssure.8.3%. The life business reported £26m operating profit within the £115m PBT. That is 4.1p EPS excluding the life business which is flat year on year. AUMA is up 8% over the 6 month period. Modest net inflows are reported over the period although Q2 suffered an outflow.
  • Estimates Pre tax profit was expected to be £226m for the full year of which more than 50% was delivered in H1 so after stripping out the life business the underlying wealth and platform business may have scope for upgrades.
  • Valuation Underlying H1 EPS was 4.1p If we simply doubled this the business would be on a rating of 17X but it also has £425m cash of which some will come back to shareholders dependent on capital requirements of the business. The company reports a solvency 2 capital ratio of 180% and holding company cash of £374m. If we assumed that £350m came back to shareholders the PER would reduce to 14.8X. The underlying dividend yield would be 4.5%.
  • Conclusion When the strategic review was announced on 4 July the sgares were 145p and I had guessed at a value of £600m for the life business which turned out to be £425m. I came to a SOTP of £3.6bn but that was assuming that the platforms business would be rerated towards the valuations of other platforms. If that happens perhaps a £3.4bn (178p) share price may be achievable. But head office costs were £17m in 6 months. The real upside would come from reducing this now the business is simplified. The group has an “optimisation” programme delivering cost reduction but with a 26% operating margin I suspect the optimisation programme should be directed to head office.

4 July 2019

Quilter Plc – Strategic Review 

Share Price 145p

Mkt Cap £2.76bn

Conflict Disclosure: No Holding

  • News  Quilter confirms the stories that a strategic review is taking place regarding the Heritage life assurance business. No decision has been taken
  • Valuation On a SOTP basis I can get to £3.6bn but this is just having a stab. Methodology as follows:
  • Advice and Wealth Management  – £373m revenue. Financial planning – £1bn AUM and £89m revenue – worth 3X revenue so valued at £267m. Quilter Cheviot – £22.4bn AUM yielding 72bps revenue – definitely worth 3% AUM – £672m. Quilter Investors – advisory so lower quality but £17.8bn yielding 59bps so must be worth 2% – £356m.
  • Platforms (£414m revenue). Wealth solutions – £170m revenue.  Integrafin trades at 32X PE and Nucleus at 28X.  If we imputed a 40% margin we get £68m and putting that on 30X after tax profit gives us ££1.6bn.  International –  £18.4bn AUA and £135m revenue.  This is probably worth a lower multiple as its margins will be lower.  If The UK platform is worth 9X revenue let’s say 5X revenue which is £675m. May be a bit harsh here.  
  • So value of business before the life business may be£3.57bn but there are £32m of head office costs. If we put them on a post tax multiple of 15 that would reduce the valuation by £600m so £3bn. The life business has net assets of c£1bn. And revenue of £109m.  That could be worth NAV but may be hopeful. Lets say £600m.  So all in SOTP £3.6bn.
  • At the current price the PER is 13X. If they stayed as they are the £3.6bn valuation would put the PER at 16.5X.
  • Conclusion.The company included the life assurance earnings within the Wealth Platforms division and the market has declined to value the company highly.  This may be a step towards releasing value but I can’t help wondering if the £32m central overhead is a large number that may tempt a competitor to step in and take a look at the whole group.

17 April 2019

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Quilter Plc– Trading Update 

Share Price 156p

Mkt Cap £2.98bn

Disclosure: No holding

  • Update Net inflows (described as NCCF) were 0.5% bringing total AUM with market tailwinds to £114.9bn up 5.1%.  Wealth and Advice experienced 0.7% net inflows while the platforms experienced net outflows of £1.5bn (2.2%) and the life book experienced outflows of £0.8bn (6%). A £0.2bn portfolio loss is expected to impact Q2.
  • Estimates Anticipate 12% EPS growth this year
  • Valuation Per 14X Yield 3.5%. But this should really be a SOTP valuation. Advice and Wealth made £102m PBT last year which may be worth £1bn. And apportion 75% of the profits in the platform business putting them on a PER of 16 and the balance of 25% from the life book on a PER of 5 we get c. £2.5bn market cap.
  • Conclusion The shares look quite pricey for a business with modest flows. T

12 March 2019

Quilter – FY Results  

Share Price 132p

Mkt Cap £2.5bn

  • Results AUM down 4% over the year to £109bn despite net inflows. Despite this revenue grew 8% to £788m.  Improved operating margins of 30% delivered adjusted PBT up 11% to £233m. Adjusted diluted EPS up 15% to 12.3p. The FCA investigation into the closed life book clients has completed without sanction and the UK Platform Transformation programme is expected to commence migration by Autumn 2019. Management are “excited” about the journey ahead.
  • Estimates Profits look in line with consensus
  • Valuation  PER 13.5X and yield 3.5%
  • Conclusion With c 60% of profits coming from platforms and c 40% from wealth and advice this looks to be a very cheap way of getting exposure to the platform space. If it wasn’t for those words “platform migration due to commence in the autumn” which send a cold shiver down an investors spine. Particularly when the IT development costs are flat at £120m per year.  If that migration goes well these shares could re rate.

25 June 2018

Quilter – Demerger IPO

Share Price 145p

Mkt Cap £2.8bn

·         Offer The offer has priced at 145p vs the original range of 125p-155p which seems to be a very polite result valuing the company at £2.8bn for the £111.6bn of AUMA at 31 March 18 representing 2.5% of AUMA. Net inflows were 1% in Q1 which is in line with other wealth managers. 74% of the AUMA are on Wealth platforms while financial planning assets amount to 1% of the total which isn’t enough to get excited about.

·         Comps Brewin trades at 2.4% of AUM while Rathbone trades at 3.3% AUM. Brooks trades at 2.1% of AUM.