Tatton Asset Management interims & outlook justify upgrade says Zeus Capital

Tatton Asset Management plc (LON:TAM) has maintained “strong growth across all key metrics of AuM, revenue and profits”. In addition to the 20% growth in AuM to £10.8 billion reported in its October update, Tatton’s interim results reveal:

  • 26.4% revenue growth to £13.8m;

26.5% growth in Tatton division revenue;

26.1% growth in Paradigm division revenue;

  • 37.9% rise in adj operating profits to £6.9m

50.1% adj operating margin (prior year: 45.9%)

  • 33.7% rise in adj fully diluted EPS to 8.76p
  • 14.3% rise in interim DPS to 4.0p (prior year: 3.5p)

Outlook: Paul Hogarth, Tatton Asset Management CEO observed: “Trading momentum has continued since the last market update and post Period end and, as a result, we now anticipate that trading for the current financial year will be ahead of the Board’s previous expectations.”

Zeus view: Tatton has grown faster than we had forecast. Assuming net inflows of £100m a month (i.e. £1.2 billion pa from £1.0 billion pa), we raise our expectation of AUM on 31 March 2022 and 2023 from £10.65 billion and £11.65 billion to £11.5 billion and £12.7 billion respectively (i.e. 8.0% and 9.0% increases).

We have recalculated our forecasts for FY(Mar)22 and FY(Mar)23 using updated market values and forecast inflows at £100m a month. In summary, we: 

  • Raise our revenue forecasts 4.3% & 7.6% to £29.0m & £33.9m;
  • Raise our EBITDA forecasts 5.8% & 11.2% to £14.7m & £17.9m;
  • Raise our adj PBT forecasts 5.4% & 11.3% to £13.6m & £16.8m;
  • Raise our adj diluted EPS 4.9% & 5.7% to 17.8p & 20.9p respectively.

This does not, in our opinion, fully reflect the positive impact of the Fintel 5 year distribution agreement both direct (through increase AuM, revenue and profits) and indirect (through increased engagement with IFAs).

We republish our analysis of Tatton’s multiple partnerships, including Fintel, on page 3, exhibit 2.

Valuation: At 580p a share and with c24p per share cash, Tatton has an enterprise value of c £327m, and is trading on EV/sales of 11.3x. This is consistent, in our view, with our expectation of EBITDA margin of over 50% and revenue growth of over 17% pa for next year.

We expect Tatton Asset Management shareholder return to be driven by revenue growth.

Benefits of scale should lead to faster revenue growth and even faster profit growth. Tatton’s partnership with Fintel provides the opportunity for many more years of double-digit growth in IFA firms, clients, AuM, revenue, profits and dividends.

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