What’s new: Tatton’s trading update for the six months to 30 September is accompanied by a bolt-on acquisition: Tatton has agreed to acquire Sinfonia Asset Management for up to £2.7m (£2.0m on completion; £0.7m on performance) from the Tenet Group.
The trading update confirms that “The Group continues to trade in line with the Board’s full year expectations”. Evidence of continued growth is:
- 14.8% rise in Group AuM to £7.0 billion (30/918: £5.7 billion: 22.8% rise YoY; 31/3/19: £6.1 billion: 14.8% rise over the past 6 months)
1H organic net inflows of £441m increased AuM by 7.2%;
Market and performance added 5.5% over the 6-month period;
the Sinfonia acquisition added £135m, increasing Group AuM by 2.3%.
- 5.4% rise in firms for Paradigm Mortgage Services, which grew its market share, with member firms increasing by 74 to 1,466 firms.
- § 1.3% fall in Paradigm Consulting member firms to 385 firms (30/9/18: 382 firms; 31/3/19: 390 firms), reflecting consolidation activity in the IFA market.
- Interims on 11 November will provide divisional revenue and profits, as well as details of the Sinfonia acquisition.
Outlook: Paul Hogarth, Founder and CEO, said that he is “very pleased with both the start and progress [the Group is] making with Tenet IFAs following the signing of the strategic partnership agreement in June this year and also to have reached the AUM milestone of £7 billion.”
Zeus view: These two announcements provide evidence of continuing growth at Tatton and Paradigm Mortgages. Tatton is on track to growing its AUM to over £7.3bn by 31 March 2020.
We see the Sinfonia range of funds as being complementary to Tatton Asset Management’s existing range of investments and supportive of the strategic partnership with the Tenet Group. The Sinfonia acquisition will not only be marginally accretive, but also offer potential synergies.
We will update our forecasts to reflect the Sinfonia acquisition, once the interims are published on 11 November.
Valuation: At 204p, Tatton share price does not reflect its double-digit revenue and profit growth, in our opinion.
Tatton Asset Management is trading on fully diluted prospective PER of 17x, 0.7x PEG and 4.5% dividend yield. Looking one year forward to FY(Mar)21e, the PER on our forecasts falls to 14x and dividend yield rises to 5.4%.
