Tatton Asset Management “proposed acquisition of 8AM should be earnings enhancing” says Zeus

Tatton Asset Management plc (LON:TAM) has issued a positive trading update for the year to 31 March 2022 “strong organic growth in line with expectations” and an agreement to acquire 50% interest in 8AM Global Limited for £7m (see below for details). Tatton’s trading highlights are:

¨ Assets under management rose 26.1% to £11.34bn (2021: £8.99bn; Zeus forecast £11.5bn, now updated to £11.3bn; forecast to March 2023 remains £12.7bn).

  • £1,277m net inflows (2021: £755m); average of £106/month; 14.2% of opening AUM
  • Verbatim funds acquisition added £650m and market a further £420m
  • Paradigm grew its B2B network of IFAs and performed well
  • Consulting member firms increasing 4.3% to 421 (2021: 407)
  • Mortgage firms increasing 3.8% to 1,674 (2021: 1,612), and completions rising 13.3% to £12.8 bn (2021: £11.3bn; 1H to Sept 2021: £6.8bn; 2H to March 2022: £6.0bn)

¨ Cash on the balance sheet was £21.7m (Zeus forecast £17.0m, now updated to £21.7m; our 2023 net cash forecast remains unchanged at £22.0m).

Proposed acquisition: 8AM is an investment manager primarily focussed on delivering risk-profiled model portfolios and a small range of multi-manager funds. The model portfolios and funds will complement Tatton Asset Management’s existing proposition, further demonstrating our commitment to supporting financial advisers in delivering low-cost investment management and enhancing IFA client outcomes.

¨ 8AM will contribute c.£0.8 billion of Assets Under Influence to Tatton’s AuM

¨ Give Tatton Asset Management access to a broader distribution base of UK financial advisers;

¨ Add an ambitious and strong management team with a wealth of industry experience;

¨ C £7.0m consideration is 0.88% of AUI, and comprises 50% or £3.5 million of initial consideration, payable through the issue of new shares, and £3.5 million deferred consideration payable in equal cash instalments against financial performance targets at the end of the first year and second year post completion, with an option to acquire the remaining 50% of 8AM’s share capital following the deferred consideration period;

¨ Expected to be earnings enhancing with contribution from the 50% shareholding expected to generate adjusted operating profit of £0.7m in its first full 12 months.

Zeus view: This trading update is encouraging and the proposed acquisition of 8AM should be earnings enhancing. Although we have updated our 31 March 2022 forecasts for AuM and net cash (as shown above), we leave our P&L forecasts unchanged.

We will revise our P&L forecasts when we have sight of reported revenue and profitability for 2021/22 and when 8AM receives regulatory approval.

Summary financials

Price437.5p
Market Cap£257.8m
Shares in issue58.9m
12m Trading Range378p–610p
Free floatResults 15 June

Financial forecasts

Yr end Mar (£’m)2021A2022E2023E
Revenue23.32933.9
yoy growth (%)92417
EBITDA12.114.717.9
EBIT11.413.917.1
Adj. PBT11.213.616.8
Adj. PAT9.11113
AuM at 31 Mar9,00011,34012,700
EPS (p) ful dil. Adj.14.717.820.9
DPS (p)1112.515
Net cash16.921.722
P/E29.824.620.9
EV/EBITDA19.516.113.2
Div yield (%)2.52.93.4
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