Tatton Asset Management “remains financially strong” says Zeus Capital

Asset Management

Tatton Asset Management plc (LON:TAM) interim results confirm the growth set out in the recent trading update:

  • 12.6% rise in Group Revenues to £11.0m (1H last year: £9.7m);
  • 21.9% rise in adj operating profit to £5.03m (1H last year: £4.13m);
  • 17.4% rise over 6 months in AUM to £7.8bn on 30 September 2020,
    From 31 March 2020 the WMA balanced index rose 11.6% to 4510;

Market movements added 12.5% to AUM (i.e. Tatton outperformed WMA);

­1H net inflows of £328.1bn were 4.9% of opening AUM (i.e. c 10% annualised net inflows);

Interims also reveal:

  • Tatton’s AuM in mid-November reached £8.1bn (i.e. up 3.8% in 3Q to date);
  • £4.4m operational cash flow before exceptionals (134% of operating profit);
  • 21.5% rise in adj diluted EPS to 6.55p;
  • 9.4% rise in interim DPS to 3.5p;
  • Net cash of £13.3m and a new £10m bank facility with £20m accordion.

Outlook:  Paul Hogarth, Founder & CEO commented: “despite the exceptional circumstances of the last six months we have delivered a resilient performance with strong growth in revenue, profits and margins and remain on track to meet market expectations in FY 2021.”

Zeus view: Despite Covid-19,Tatton is trading as expected, remains financially strong and has added to its unused bank facilities, which should support growth. 

We have updated our forecasts (see Exhibit 1) to include divisional revenues and forecasts; we maintain our FY21E revenue of £22.0m and £10.0m operating profit (i.e. 45% operating margin), which prudently implies no 2H/1H revenue or profit growth. We retain our forecast cash for 31 March 2021 of £15.4m. We increase our DPS by 2.9% from 10.2p to 10.5p.

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We remind investors that Tatton has the opportunity to organically double its AuM to £16bn by increasing its average AuM per firm to £26m (see Exhibit 2).

We now publish forecast for FY(Mar)22E, which assumes financial markets falls back to 30 September 2020 levels: we expect 11% revenue rise, 10% growth in adjusted diluted EPS to 14.4p and a 4% rise in DPS to 10.9p.    

Valuation: At 284p, in our view, Tatton share price reflects its record of double-digit revenue and profit growth. Tatton is trading on fully diluted current year PER of 21.7x and 3.7% dividend yield; on our 2022 forecasts which assume current market levels and £0.8bn pa of net inflows, Tatton is trading on 19.7x PER and 3.8% dividend yield.

Tatton Asset Management has a strong balance sheet, net cash 67% of net assets, and a cash generative business model, which funds an attractive and growing dividend.

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