Tatton Asset Management: Beating all analysts’ forecasts

What’s new: Full year trading update for Tatton Asset Management plc (LON:TAM) reveals full year results on 15 June will be “ahead of all analysts’ forecasts”. Good momentum has continued into the year to 31 March 2022.

  • 35% rise over last 12 months in AUM to £9.0bn on 31 March 2021;
  • Net inflows added £755m, with 2H net inflows of £427m 30% higher than
    1H net inflows of £328m; annualised growth rose from 10% to 11%;
  • Market movements added £1.5bn or 22% (i.e. outperforming WMA);
  • From 31 March 2020 the WMA balanced index rose 19% to 4819;
  • Since 1 April 2021 the WMA balanced index has risen 3% to 4961;
  • 3.3% rise in Paradigm Consulting member firms to 407 (2020: 394), with 2H rise higher than 2.5% in 1H;
  • 4.4% rise in Paradigm Mortgage firms to 1,612 (2020: 1,544) with 2H rise
    higher than 3.0% in 1H; increase in market activity in 2H helped by stamp duty holiday; 10% rise in gross lending to £11bn (20% rise in 2H to £6bn);
  • £16.9m of net cash (30 Sept 2020: £13.3m).

Outlook:

Paul Hogarth, Founder & CEO commented: “Our strong performance
proves the resilience of our business model which is supported by a high degree of annual recurring revenues and cashflow generation creating a strong balance sheet which is the bedrock of all good businesses.

“As we enter the new financial year, we carry forward good momentum and expect to make further progress in the execution of our strategy.”

Zeus view: We estimate average AUM for FY(Mar)21E c. 3% ahead of our
assumption: we expect results on 15 June to beat our unchanged FY21E forecasts.

Cash on 31 March 2021 was 10% above our forecast of £15.4m and AUM also beat our forecast: we now forecast March 2022 AUM of £10.0bn (see page 2). With £0.8bn higher average AUM for FY(Mar)22E we raise our FY22E revenue forecast £1.5m (i.e. 6.1%). With c 67% drop through margin, we raise our FY22E adj PBT forecast £1.0m (i.e. 9.1%) and consequently EPS and DPS for FY22E by 9%.

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

Valuation: At 378p, in our view, Tatton share price reflects its record of doubledigit revenue and profit growth: fully diluted current year (i.e. to 31 March 2022) PER of 24x and 3.1% dividend yield, with expectation of 20% EPS and 13% DPS growth. Tatton Asset Management has a strong balance sheet, net cash over 67% of net assets, and a cash generative business model, which funds an attractive and growing dividend.

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