Hits: 5

8 April 2020

River & Mercantile – Trading Update
Share Price 167p
Mkt Cap £143m
Conflict Disclosure: No Holding

Update Net inflows in the quarter were £434m or 1%. Performance was -5.3%. Interim dividend will be paid of 4.4p/share. No performance fees expected in current year and advisory fees of £2.7m estimated for Q1. Future redemption notified amount to £1.6bn and £66m of mandates transitioning in.

Balance Sheet Net assets of £61m and £25m cash at December place the company in a strong position. The company was forecast to make a 20% EBITDA margin.

Valuation The yield is 6%. On previously forecast earnings the PE is 13.5X. Shares are down 45% since February.

• Conclusion The company has been investing and after this trough year was forecast to grow 21% in 2021. This may now be a more acute trough but the maintenance of the dividend will add confidence that the company will prosper on the other side.

16 March 2020

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River & Mercatile – H1 Results 

Share Price 212p

Mkt Cap £181m

Conflict Disclosure: No Holding

  • Results Over the 6 months to December AUM was up 6.2% to £42.3bn. Investment performance was strong adding 1.8% over the 6 months. Underlying revenues grew 7% to £35.3m while performance fees fell from £6.5m to £1.1m resulting in revenue falling 7% to £36.3m.  Investment in the business increased the cost base so EPS was down 28% to 7.29p. The business is operating a split team programme for the virus and the outlook says they are well positioned to help clients through these difficult times.
  • Estimates June 2020 forecasts anticipate 17.7p EPS. With 41% of this delivered in H1 this is too high.  It may be difficult to repeat the H1 performance with lower markets but conceivable the shares could be priced off 10-15p EPS.
  • Valuation If it was priced off 10-15p EPS the shares could be 120-180p. But there is yield support. The H1 dividend is 4.39p, of which 0.5p is performance fee. Last year’s second interim dividend ex performance fee was 2.6p and final was 2.6p.  That makes a management fee dividend of 8.8p if H2 was in line with last year’s. A 6% yield would imply 150p
  • Conclusion The profits will be hit like most fund managers. Just as the company is set to benefit from investing through its P&L it takes a revenue hit. With £26m cash it has a strong balance sheet and is one to own if we have any possibility of knowing how bad the market can get.

3 February 2020

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River & Mercantile – Q2 Trading Update 

Share Price 273p

Mkt Cap £233m

Conflict Disclosure: No Holding

  • Update Net inflows were 1.7% over the quarter to December, taking AUM to £42.3bn. Investment performance was negatice 0.4% over 3 months but positive over 6 months.  Flows over 6 months are 4.4% of AUM. The outlook statement is very positive noting a new Fiduciary client of £1.16bn since the period end and a growing pipeline of opportunities across the business. Performance fees for the half year are expected to be £2m and advisory fee revenues in the quarter are £3m
  • Estimates A small decline in revenue is expected to June 20 followed by 13% growth. Reduced costs result in 18% PBT growth to £18.8m in June 20 followed by 20% growth thereafter
  • Valuation EV/AUM 5% PER 15X yield 5.4%.
  • Culture The company discloses its weighted average fund performance which is helpful. The 12 galssdoor review largely refer to it as being friendly and collegiate giving it a good 4.3 rating.
  • Conclusion Emerging from a difficult period having invested in distribution the flows are starting to come through despite a difficult quarter for performance. This could be higher rated as flows accelerate over the next 2 years.  Perhaps £50bn AUM is possible which with the operational leverage post investment could work magically for profit growth.

4 November 2019

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River & Mercantile – Q1 Update 

Share price 250p

Mkt cap £213m

Conflict Disclosure: No Holding

  • Update AUM up 5% to £41.7bn with net inflows of 3% in the quarter to September. The AUM increase target for the year is 12% so 40% of this has been achieved in Q1. Performance revenues in Q1 are estimated at £0.5m. The pipeline is strong.  No update is provided on the advisory business but at the results two weeks ago the company believed it was set to benefit from investment into new offices and headcount.
  • Estimates Forecasts are showing flat revenues in the current year but strong PBT growth after a year of investment.  Given AUM grew strongly in H2 to June 2019 this looks too low.
  • Valuation The PER is 13.9X and yield 6%
  • Conclusion  Companies that are emerging from a period of investment frequently seem to perform well in my view as markets don’t look through the profit impact of investment. With a new board, new structures, new board members and new offices as well as the large number of mandate pitches available as a result of the CMA review it is possible that in two year’s the market may mistake this for a growth stock.

15 October 2019

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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.  

29 July 2019

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River & Mercantile -Trading Statement

Share Price 266p

Mkt Cap £227m

Conflict Disclosure : No holding

  • Update AUM up 15 to £39.8bn driven by net inflows of 8% which is £3bn. The fiduciary business has seen a strong return to growth following the CMA review in contrast to XPS pensions who failed to disclose the CMA review as at all relevant in their IPO prospectus. The outlook is positive on markets
  • Estimates Look for 10% PBt growth and 22% EPS growth to 18.8p per shares
  • Valuation PER 14.1X and yield 6.3%
  • Conclusion The shares have come back 32% from their high last year and are compelling value.

29 April 2019

River and Mercantile – Q3 Update 

Share Price 245p

Mkt Cap £201m

Disclosure : No holding

  • Update Net inflows were 1% over the 3 months while AUM rose 6% to £36.3bn. Performance fees from fiduciary management were £0.5m over the 3 months.  Over 9 months advisory fees are estimated to be £7.5m and performance fees £6.9m.  The news here is essentially one of strong investment performance in Q3.
  • Estimates After a number of modest downgrades over the last 12 months forecast pressure may start to move the other way if investment performance continues.  Forecast assume no revenue growth over the next 12 months due to conservative performance fee assumptions
  • Valuation Per 13.9 X and yield 6.2%
  • Conclusion  I feel these investment consultants that also perform fiduciary management are in a tricky position of potential conflicts of interest.  Particularly when you earn almost as much in performance fees as you do in advisory fees so I can’t think of this as a medium term stock. However with a 6.2% yield and strong investment performance the share price may go better.

11 March 2019

River & Mercantile – H1 Results 

Share Price 244p

Mkt Cap £200m

  • Results Adjusted PAT was down 12.5% to £8.6m while statutory PAT was down 26% to £6.7m. Diluted EOS down 23% to 8.08p. Fee earning AUM was up 1% over the period and net inflows were £1.3bn.  Adjusted pre tax margin was 24% but removing the effect of investments the company adjusts this to 29%. The investment costs appear to be £1.2m which is made up of new staff to expand the solutions business in terms of an ILC team and increases in New York and Australian presences.  The outlook statement is “strongly positioned”
  • Estimates Full year PAT is expected to be £16.6m. Assuming this is at the adjusted level it looks achievable
  • Valuation PER 13, yield 6.5%
  • Conclusion The shares are supported by yield. However part of the yield is dependent on performance fees which given poor fund performance may turn out to be variable.  It may be a little early for the recovery yet.