Tatton Asset Management plc (LON:TAM), the on-platform discretionary fund management (DFM) and IFA support services business, has today provided an un-audited year end update for the 12 months ended 31 March 2018.
The Group has performed well and the good progress reported in the interim results has continued. As a result, Group revenue and operating profit are in line with expectations.
Highlights
Assets under management of £4.9 billion at 31 March 2018 (31 March 2017: £3.9 billion) an increase of £1.0 billion or 25.6% over the year.
Paradigm Partners, the Group’s IFA support services business continues to attract new members with client firms increasing to 368 (31 March 2017: 352).
Paradigm Mortgage Services, the Group’s mortgage distribution and support services business, continues to grow with membership rising to 1,219 (31 March 2017: 1,069).
Paul Hogarth, Founder and CEO of Tatton Asset Management plc, said: “The positive impact of our IPO has continued, and we are very pleased that the Group has performed in line with expectations. Increasing assets under management by £1.0 billion in the last twelve months to £4.9 billion, and £5.0 billion as at today, is a continued endorsement of the demand for a DFM service that offers competitive pricing and has delivered strong investment returns during challenging markets. We look forward to reporting our full year results on 27 June 2018.”
Zeus Capital Comments:
Ahead of its full year results due on 27 June, Tatton Asset Management (TAM) has confirmed that the Group is growing strongly and as a result “Group revenue and operating profit are in line with expectations”. The update reveals:
Tatton’s assets under management (AuM) have risen 26% to £4.9bn;
The number of firms using its Paradigm Partners IFA support services business has risen by 4.5% (1H: 1.1% growth; 2H: 3.4% growth);
The number of firms using Paradigm Mortgage Services has risen 14.0% to 1,219 (1H: 6.9% growth; 2H: 7.1% growth).
Paul Hogarth, Founder and CEO, has confirmed that AuM is currently £5.0bn and “the Group has performed in line with expectations.”
In a separate announcement, the Board has announced the appointment of Paul Edwards (CFO Scapa Group plc 2010-16) as the Group’s CFO, with effect 1 May 2018. Noel Stubley, who has served as the Group’s CFO since March 2012, had notified the Board of his intention to retire on 30 April 2018; he will remain in an advisory capacity until 31 July 2018.
Zeus view: Trading is slightly ahead of our expectations.
The FT Wealth Managers (WMA) Index ended March 2018 at 4,072 (1.5% below index of 4,132 on 30 September 2017). Our market adjusted expectation of Group AuM was £4,834m (1H18A: £78m positive; 2H18E £87m negative). The Group AuM of £4.9bn is in line with our forecasts and expectations.
The number of IFA firms using Paradigm Partners and Paradigm Mortgage Services is around 2% ahead of our forecasts and expectations. If this growth continues we may have to raise our forecasts.
We leave our financial forecasts unchanged.
Valuation
At 204p, Tatton shares are trading on a 3.2% dividend yield and on 22x EPS for the year to March 2018. In our opinion, this does not reflect the quality of its growth.
For the year to March 2019, we see prospects for over 20% EPS and DPS growth: the prospective dividend yield is 3.8%; prospective PER is 18x, and PEG is 0.9x. On a FY(Mar)19e PEG of 1.0x Tatton shares would trade on 237p (i.e. 16% above the current share price of 204p).
Looking one year further forward to FY(Mar)20e with £7.2 bn of AuM, the PER on our forecasts falls to 15x and dividend yield to 4.5%.
In our opinion, when TAM has £10 bn of AuM, Group EPS should reach 18p and the stock, TAM, could trade on circa 20x (i.e. at 360p per share). Discounting this back at a risk discount rate of 40% pa, implies a mid-2018 valuation of 255p per share (i.e. 25% above the current price of 204p).
