Tatton Asset Management (LON:TAM) full year results are accompanied by two “wins”: (1) Tenet Group, one of the largest UK financial adviser groups with 474 firms, has selected Tatton Investment Management to run its Managed Portfolio Service, which we believe has the potential to add c £2bn of AUM over time; (2) Frenkel Topping, the specialist IFA, has appointed TIML as its group investment manager. The highlights of Tatton’s results are:
12.9% rise in Group revenue to £17.5m (consensus £16.9m to £17.5m);
12.3% rise in adj operating profit to £7.3m (consensus £7.2m to £7.8m), delivering a respectable adjusted profit margin of 41.7% (2018: 42.1%);
9.9% rise in adj fully dil EPS to 10.0p (consensus 9.1p to 10.4p; Zeus 10.4p); without dilution adj EPS rose 14.0% to 11.0p (Zeus forecast 11.3p);
Total DPS of 8.4p including 5.6p final proposed (Zeus forecast 8.4p);
Net cash of £12.2m (Zeus forecast: £12.3m).
Investors will remember, on 16 April, the Group trading update revealed:
TIML’s AuM rose 24% YoY to £6.1bn (Zeus forecast £6.0bn);
Paradigm Consulting increased its member firms by 6% to 390;
Paradigm Mortgage Services increased its member firms by 14% to 1,392.
The Chairman observes “the Group has delivered double digit percentage organic growth in both revenue and profit and continued to see strong net inflows in Assets Under Management… [hence] … the Board’s confidence in the immediate outlook”.
Zeus view: Group revenue growth beat our top of the range expectations, with TIML performing well. Higher 2H19 TIML revenues lead us to raise our forecasts, which are partially offset by lower Consulting revenues: we raise our FY20 and FY21 Group revenue forecasts by 1.4% and 2.8%. Our new forecasts do not, at present, include the positive impact of the Frenkel Topping and Tenet Group “wins”.
Business development and support costs in TIML were £0.5m higher than we expected. Our new forecasts (see pages 2 to 4) reflect further P&L investment. Overall, we trim our profit and EPS forecasts for FY20 and FY21 by 4% and 2% respectively. We leave our DPS forecasts unchanged.
Valuation: At 199p, Tatton share price does not reflect its double-digit revenue and profit growth, in our opinion. Tatton is trading on fully diluted prospective PER of 16.4x, 0.8x PEG and 4.6% dividend yield. Looking one year forward to FY(Mar)21e, the PER on our forecasts falls to 13.5x and dividend yield rises to 5.5%.
