What’s new: Tatton Asset Management plc (LON:TAM) results for the year to 31 March 2020, were as indicated by its 21 April update: “in line with analysts’ forecasts”. Highlights are:
- 22% rise in revenues to £21.4m (or £20.2m ex current year VAT refund)
– 27% rise in Tatton division revenue to £15.9m
– 10% rise in Paradigm division (Mortgage Services & Consultancy) to £5.5m
- £1.13bn of net inflows for the 12 months, which is 18.6% of opening AUM
Average net inflows £94m a month
IFA firms using Tatton increased 34% to 595 firms
- On 31 March 2020 AUM was £6.65bn (9.6% rise over the year)
On 21 February 2020 the AUM reached £7.76bn
From 21 February to 31 March WMA balanced index fell 12% to 3872
Market movements (including March 2020) reduced AUM by £0.7bn
§ Cash on 31 March 2020 was £12.8m
Outlook: During Covid-lockdown Tatton’s engagement with IFA clients fell from 30 meeting a week to below 10. Recently activity has recovered to 20 meetings a week. Tatton’s net inflows are expected to return to normal levels in H2. Paradigm Mortgage and Consulting revenues will be impacted by the Covid-lockdown, with revenue depressed between 10% and 25%.
Zeus view: Despite Covid-19,Tatton is trading well and remains financially strong.
Tatton‘s current AUM is £7.5bn, with the WMA Index at 4225 (n.b. 9.1% above 31 March 2020 level). Assuming flat markets and £0.9bn net inflows over the next 10 months, we expect Tatton’s AUM to reach £8.4bn by 31 March 2021 (i.e. average AUM of £7.5bn, which is a rise of 14% YoY on £6.6bn).
With over 55% of Group revenues directly linked to AUM, we expect Group revenues to rise to £22.0m and operational gearing (70% marginal profit margin) resulting in adj PBT rising c £0.9m (i.e. 10% pa) to £10.0m.
Valuation: At 295p, in our view, Tatton share price reflects its record of double-digit revenue and profit growth. Tatton is trading on fully diluted historic PER of 24.6x and 3.3% dividend yield; on our new 2021 forecasts which assume current market levels and £0.9bn of net inflows over the next 10 months, Tatton is trading on 22.5x PER and 3.45% dividend yield.
Tatton Asset Management has a strong balance sheet, substantial surplus net cash, and a cash generative business model, which enables it to pay dividends.