Tatton Asset Management Continued strong trading momentum delivers record AUM of £10.8 billion

Tatton Asset Management

Tatton Asset Management plc (LON:TAM), the investment management and IFA support services group, today announced its interim results for the six-month period ended 30 September 2021.

FINANCIAL HIGHLIGHTS

– Group revenue increased 26.4% to £13.8m (Sep 2020: £11.0m)

– Adjusted operating profit1 up 37.9% to £6.9m (Sep 2020: £5.0m)

– Adjusted operating profit1 margin 50.1% (Sep 2020: 45.9%)

– Adjusted fully diluted EPS2 increased 33.7% to 8.76p (Sep 2020: 6.55p)

– Interim dividend up 14.3% to 4.0p (Sep 2020: 3.5p)

– Strong financial liquidity position, with net cash of £14.7m

– Strong balance sheet – Net assets increased 37.5% to £27.5m (Sep 20: £20.0m)

1.                    Adjusted for exceptional items, share-based payment costs and amortisation

2.                    Adjusted for exceptional items, share-based payment costs, amortisation and potentially dilutive shares

OPERATIONAL HIGHLIGHTS

–  Assets Under Management (“AUM”) increased £1.8bn or 20% to £10.8bn (Mar 2021: £9.0bn)

–  Current AUM at 12 November 2021 c.£11.2bn

–  Organic net inflows £652m (Sep 20: £321m), an increase of 7.3% of AUM – Average run rate of £109m per month

–  Acquisition of £650m Verbatim funds and a five-year strategic distribution partnership with Fintel plc, providing access to 3,800 firms and over 6,000 users

–  Tatton’s non-MPS propositions account for over £1.2bn of AUM as at the end of the Period

–  Tatton’s IFA firms increased by 12.7% to 703 (Sep 2020: 624) and the number of accounts increased 19.1% to 81,600 (Sep 2020: 68,500)

–  Tenet continues to develop well with AUM reaching £740m (Mar 2021: £541m)

–  Paradigm mortgage completions up by 31.6% to £6.6bn (Sep 2020: £5.0bn). Paradigm Mortgages member firms increased by 3.5% to 1,646 members (Sep 2020: 1,591 members)

–  Paradigm Consulting increased its members by 3.5% to 418 (Sep 2020: 404)

Trading momentum has continued since the last market update and post Period end and, as a result, we now anticipate that trading for the current financial year will be ahead of the Board’s previous expectations.

Paul Hogarth, Tatton Asset Management Chief Executive Officer, commented:

“I am delighted to report that the Group has delivered a solid first half result, delivering against our strategic objectives and maintaining strong growth across all our key metrics of AUM, revenue and profits.

During the Period, Tatton exceeded the milestone of £10 billion AUM from pure organic growth while also expanding our distribution footprint by entering into new long term strategic partnerships and we were thrilled to have reached £10.8 billion at the end of September 2021. Paradigm also delivered a record level of mortgage completions of £6.6 billion in the six month Period. Trading momentum has continued since the last market update and post Period end and, as a result, we now anticipate that trading for the current financial year will be ahead of the Board’s previous expectations.

The IFA remains at the heart of our business, and our breadth of services, propositions and engagement ensures we maintain existing client relationships while enhancing our ability to attract new firms. Accordingly, as we look forward, we are confident we will continue to make progress and take advantage of the opportunities ahead.”

Strategic Review

TATTON DELIVERS CONTINUED GROWTH

At the end of last year, we set out a roadmap for growth, which targeted an increase in the Group’s AUM from £9.0 billion to £15.0 billion over the next three years through a combination of organic growth and acquisition. After the first six months we have made excellent progress against this plan and we were delighted to reach £10.787 billion (31 March 2021: £8.990 billion) of AUM at the end of September 2021. This progress has been delivered through a combination of strong organic growth of 12.8% and the acquisition of the Verbatim funds announced towards the end of the Period, which added a further £0.650 billion to the total.

Group revenue for the Period increased 26.4% to £13.847 million (2020: £10.956 million). Adjusted operating profit1 for the Period increased 37.9% to £6.934 million (2020: £5.030 million) with adjusted operating profit margin1 increasing to 50.1% (2020: 45.9%).

Pre-tax profit after the impact of exceptional items, amortisation of customer relationship intangibles, finance costs and share-based payment charges increased to £4.787 million (2020: £3.074 million) and taxation charges for the Period were £0.889 million (2020: £0.414 million). This gives an effective tax rate of 18.6% when measured against profit before tax. Adjusting for exceptional costs and share-based payments the effective tax rate is 19.9%.

The basic earnings per share were 6.82p (2020: 4.77p). When adjusted for exceptional items and share-based payment charges, basic adjusted earnings per share were 9.48p (2020: 7.25p). Adjusted earnings per share fully diluted for the impact of share options were 8.76p (2020: 6.55p), an increase of 33.7%.

TATTON

Tatton has continued to grow strongly over the last six months and maintains its position as a leading provider of on-platform Managed Portfolio Services (“MPS”) and fund solutions. We continue to grow and prosper by driving revenue and profitability, which is underpinned by our expanding distribution footprint and diversified proposition. The IFA remains at the heart of our business, and our breadth of services, propositions and engagement maintains existing client relationships and enhances our ability to attract new firms.

TAM continues to execute its strategy successfully, growing AUM both organically and through acquisition in the Period. Total AUM increased by 20.0%, or £1.797 billion, to £10.787 billion (Mar 2021: £8.990 billion) in the Period with organic growth contributing 12.8%. The number of firm relationships also increased to 703 (Mar 2021: 668), an increase of 5.2%, and client accounts increased to 81,600 (Mar 2021: 72,450), an increase of 12.6%.

Tatton net inflows were £0.652 billion, increasing 98.8% compared with the same Period last year (Sep 2020: £0.328 billion). In addition, strong investment performance increased AUM by over 5.0%, adding £0.495 billion, and the recent Verbatim acquisition contributed a further £0.650 billion.

Towards the end of the Period the Group acquired £650 million of Verbatim funds, a range of multi-index and multi-asset funds that complement and extend our current fund range and further enhance the proposition to IFAs. Our AUM across all our Open-Ended Investment Companies (“OEICs”), including the Verbatim funds, Sinfonia funds and Blended funds, now accounts for over £1.0 billion of our total AUM and continues to grow.

In addition to the acquisition, we also entered into a five-year strategic distribution partnership with Fintel plc providing access to over 3,800 new financial intermediary firms and its 6,000 Defaqto users. In the same Period we are delighted to commence strategic partnerships with Threesixty Services following a robust due diligence process and we are also excited to begin our engagement with Sesame Bankhall Group.

Alongside the Verbatim acquisition, these new relationships significantly enhance our reach and distribution – both proactively and in response to market demand for access to Tatton’s suite of services. Broadening our adviser base will further contribute to the growth of our AUM, demonstrating our strategy in action alongside our ability to execute it in the timeframe set out.

Tatton’s revenue, which accounts for 78.6% of Group revenue, grew 26.5% to £10.885 million (2020: £8.605 million) and adjusted operating profit1 grew 34.2% to £6.673 million (2020: £4.971 million2), increasing the adjusted operating profit margin1 to 61.3% (2020: 57.8%2).

PARADIGM

Paradigm has performed well in the Period, growing revenue over the same period last year by 26.1% to £2.954 million (2020: £2.343 million) and adjusted operating profit1 by 96.2% to £1.254 million (2020: £0.639 million2).

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Paradigm Consulting services increased its members to 418 (March 2021: 407). The business saw an increase in additional consulting and contracted compliance days as we continue to leverage the benefits of integrating the Paradigm businesses.

Paradigm Mortgage Services, the Group’s mortgage distribution and support services business, contributed strongly to the growth and delivered a very good first half performance. The number of mortgage firms utilising the services increased to 1,646 (March 2021: 1,612) and the improved activity and momentum built up at the start of the year have continued throughout the Period. This was driven fundamentally by an active housing market which has been underpinned by increasing demand with record mortgage applications, maturities and the UK Government’s stamp duty stimulus. The number of mortgage products made available by lenders has significantly improved and the constraints we experienced in the market this time last year have eased. While face to face engagement with our clients has taken longer than anticipated to return to pre-pandemic levels, we are recently experiencing a more normal historical level. The net effect is that mortgage completions in the Period reached a record of £6.6 billion (2020: £5.0 billion), an increase on the prior year of 31.6%. As we look forward, we anticipate buyer demand will steady and a stable trend in completions will be the result.

ACQUISITION

On 14 September 2021 the Group acquired the Verbatim range of funds (“Verbatim funds”) for a cash consideration of up to £5.8 million. The consideration is made up of £2.8 million paid in cash on completion with the remainder also payable in cash over the next four years, subject to certain performance conditions. Over the remainder of FY22, the transaction, which includes both the acquisition of the funds and a five-year strategic distribution partnership agreement, is expected to generate adjusted operating profit1 of c.£0.6 million, with adjusted operating profit1 of c.£1.5 million expected in FY23, the first full financial year.

SEPARATELY DISCLOSED ITEMS

Exceptional items, along with share-based payment charges and amortisation of customer relationship intangible assets, are reported separately to give better clarity of the underlying performance of the Group. The alternative performance measures (“APMs”) are consistent with how the business performance is planned and reported within the internal reporting to the Board. Some of these measures are also used for the purpose of setting remuneration targets.

The Group incurred exceptional costs of £0.2 million related to the acquisition of the Verbatim range of funds.

BALANCE SHEET

The Group’s balance sheet remains healthy with net assets at 30 September 2021 totalling £27.5 million (2020: £20.0 million) reflecting the continued growth and profitability of the Group. Property, plant and equipment has decreased slightly to £0.9 million (2020: £1.1 million). Intangible assets, including goodwill, of £13.4 million have been recognised (2020: £7.7 million), an increase of £5.7 million largely relating to the acquisition of the Verbatim funds.

CASH RESOURCES

Cash generated from operations was £6.8 million, £7.0 million before exceptional items (2020: £4.4 million) and was 138% of operating profit. The Group remains debt free with closing net cash at the end of the Period of £14.7 million (2020: £13.3 million). The cash resources are after the payment of £2.8 million for the acquisition of Verbatim, corporation tax of £1.6 million and dividend payments of £4.3 million relating to the final dividend for the year ended 31 March 2021.

ISSUE OF NEW SHARES

In the Period, the Group issued 966,546 shares to the Employee Benefit Trust (“EBT”). The EBT subsequently held 1,741,703 shares which were utilised in full to satisfy the exercise of both 2017 and 2018 Enterprise Management Incentive (“EMI”) options which had met a proportion of the vesting criteria. The Group also issued 49,803 shares to employees who elected to exercise their options pursuant to the Company’s Save As You Earn (“SAYE”) employee share scheme.

DIVIDEND PROPOSAL AND CAPITAL ADEQUACY

The Board is pleased to recommend an interim dividend of 4.0p per share, an increase of 14.3% on the prior period interim dividend. This level of dividend reflects our cash performance and underlying confidence in the business, while at the same time ensuring that appropriate levels of capital resources are maintained within the Group. On 1 January 2022, the FCA is introducing a new prudential regime for MiFID investment firms, the Investment Firms Prudential Regime (“IFPR”). As a result of these new rules, the Group will face an increased level of requirement as to the level of capital resources held across the Group, with restrictions in utilising cash or debt to fund acquisitions.

The interim dividend of 4.0p per share, totalling £2.4 million, will be paid on 17 December 2021 to shareholders on the register at close of business on 26 November 2021 and will have an ex-dividend date of 25 November 2021. In accordance with International Financial Reporting Standards (“IFRSs”), the interim dividend has not been included as a liability in this interim statement.

BUSINESS RISK

The Board identified principal risks and uncertainties which may have a material impact on the Group’s performance in the Group’s 2021 Annual Report and Accounts (pages 32 and 33) and believes that the nature of these risks remains largely unchanged at the half year. The Board will continue to monitor and manage identified principal risks throughout the second half of the year.

POST BALANCE SHEET EVENTS

There have been no post balance sheet events.

GOING CONCERN

As stated in note 2.2 of these condensed financial statements, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period not less than 12 months from the date of this report. To form this view, the Directors have also considered the impact of the current COVID-19 pandemic and the resulting economic uncertainty. Accordingly, they continue to adopt the going concern basis in preparing these condensed financial statements.

SUMMARY AND OUTLOOK

In summary the Group has delivered a solid first half result, delivering against our strategic objectives and maintaining strong growth across all our key metrics of AUM, revenue and profits. During the Period, Tatton exceeded the milestone of £10 billion AUM from pure organic growth while also expanding our distribution footprint by entering into new long term strategic partnerships. Towards the end of the Period we completed the acquisition of the Verbatim range of funds which strategically were a strong fit to our existing propositions. Paradigm also delivered a record level of mortgage completions of £6.6 billion in the six month Period.

As we look forward to the second half of the year, we do so with the knowledge that the Group’s business model has successfully navigated a difficult 18 months and continued to deliver against our strategic objectives, growing our AUM both organically and through acquisition and further developing our propositions for the IFA community. We are currently experiencing a return to face-to-face engagement and expect this to continue throughout the remainder of this financial year which is a very positive step for our business. This will bring with it new opportunities and also the additional costs associated with this increased engagement which we have anticipated in our plans.

As we look forward, we are confident we will continue to make progress and take advantage of the opportunities ahead.

1.      Alternative performance measures are detailed in note 15.

2.      Restated for the allocation of central overhead costs in the period ended September 2020.

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