# Xafinity PLC Q&A with Zeus Capital’s Research Director Robin Savage (LON:XAF)

- Link: https://www.directorstalkinterviews.com/xafinity-plc-qa-zeus-capitals-research-director-robin-savage-lonxaf/412735795
- Published: 2017-09-21T08:00:46+01:00
- Author: Amilia Stone

**Xafinity Plc** (LON:XAF) is the topic of conversation when Zeus Capital’s Research
Director Robin Savage caught up with DirectorsTalk for an exclusive interview

 

**Q1: The CMA announced that it would investigate investment consultancy and fiduciary
management services. Why has Xafinity, the listed pension consultancy, welcomed 
this investigation and what are the potential consequences?**

**A1**: First of all, the company is a market leading pensions consultancy, it provides
advice and services to trustees of UK pension schemes and companies which sponsor
these pension schemes. One of the services they provide is investment consultancy,
in short, that is providing a report to the trustees or to the sponsors of a scheme
about the performance of the investment managers and whether or not they actually
have kept to the mandate.

You will know of its larger competitors, Marsh McLennan, Aon Hewit, Willis Towers
Watson and Jardine Lloyd Thompson, collectively these firms’ market share of the
pension consultancy market is around about 50%. So, the four large competitors have
50% of the market and a very large number of smaller players have the rest and XAF
is one of the larger of the mid-markets and it has a 3% market share.

So, the Financial Conduct Authority, the FCA, carried out a market study earlier
this year and found that there were issues within this market. They found there 
were signs that the buyers of investment consultancy may not be best placed to judge
the quality or the value for money of the services they receive and they found evidence
of the biggest firms holding a large share of the market, as I’ve just said. They
also found barriers to expansion restricting smaller, newer consultants from developing
their business and they found potential conflicts of interest relating to the other
services offered by a number of firms, particularly the large fiduciary management
firms.

In short, the CMA, the Companies and Marketing Authority, is going to gather a large
amount of information and engage with key participants to find a potential remedy
to the concerns that the FCA have identified. Xafinity is working on a potential
remedy which, in our opinion, will result in improved outcomes and market share 
moving from the larger player to XAF.

 

**Q2. So, when will we know more about the potential remedy and potential impact?**

**A2**: Well, the CMA investigation will conclude by March 2019, or at least that
is what they say at the moment. There is unlikely to be any material change to the
investment consultancy or fiduciary management markets in the next two years because
these are extremely valuable services and until they are forced to move business
away from themselves, they will keep it. I think the benefits to the company and
to other mid-market players is likely to arise from 2020 and beyond.

 

**Q3. The share price is at about 166p, it’s up 22% since its IPO at 139p, is now
a good time to invest?**

**A3**: Xafinity PLC floated in February 2017, its year-end is the end of March,
it has reported its results to March, reported at the end of June so we are now 
approaching the end of the first half of its first year on the public markets. At
166p, they are trading on 18.4 times fully diluted adjusted EPS for the year that
we are currently in, the year to March 2018 and on a 3.6% dividend yield. This valuation
reflects the quality of their revenues but, in my opinion, does not reflect their
growth potential. Over the past 6 months there have been 24 million shares traded
at a volume weighted average price of 165p so I think, factually, you could say 
166p seems a reasonable price given the trading that’s taken place over the last
few months.

We expect the interim results to September to be published in December and I think
given the structure of the business, this is the time, this is the event every year
which will prompt analysts to review their forecasts for the year to March 2018 
and prospects for the following year or two.
 The reason for that is that they have
a well-established client base, there’s a very high level of repeatable income so
it’s quite a predictable company but if there are new clients which have come, if
there are new streams of revenue which are being added, I think they are quite likely
to be identified at the interim stage.

Therefore, that’s really the time when forecasts will be changed whereas at the 
end of the financial year, I suspect that the next financial year will be so far
away, three quarters of the year away, that the temptation will be to leave the 
forecasts where they are. So, I suspect that you’ll see the interims is a very good
time for forecasts to be adjusted for the company.

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