Tatton Asset Management: Strategy in action

Tatton Asset Management plc (LON:TAM) has signed a 5 year distribution partnership with Fintel and agreed to acquire Fintel’s Verbatim Funds for £5.8m cash consideration of which £2.8m is on competition and £3.0m is subject to performance. In short:

  • Grows Tatton’s Assets under Management (“AuM”)

£650m is c 6.5% of our estimate of Tatton’s £10bn of AuM

Acquisition price is 0.9% of AuM

  • Extends Tatton’s distribution

3,800 IFA firms served by Fintel’s SimplyBiz

6,000 Defaqto users

  • Tatton is now embedded in Fintel’s risk control solution

Intend to be first choice product

  • Material positive impact on Tatton’s operating profit:

2H current year: +£0.6m or 4.9%

FY22E: +£1.5m or 11.0%

  • Net cash is over £15m (30 June 2021: £16.9m; 30 Sept 2020: £13.3m).

Paul Hogarth, CEO reminds investors that he set out in June, Tatton’s strategy “a roadmap for growth over the next three years, growing AUM organically and by acquisition and extending reach to the IFA community … through strategic partnerships.”

He added: “This transaction is evidence of [Tatton’s] strategy in action and it enhances [Tatton’s] proposition to IFAs and their clients … with the multi-index and multi-asset funds complementing and extending [Tatton’s] current fund range.”

Zeus view: This deal should benefit Tatton both directly (through increase AuM, revenue and profits) and indirectly (through increased engagement with IFAs). We analyse Tatton’s multiple partnerships, including Fintel, on page 3 and exhibit 2.

We increase our forecasts to March 2022 and 2023 to reflect the direct benefits:

  • 7.6% rise in revenue to £27.8m current year; 13.0% to £31.5m next year;
  • 4.5% increase in EBITDA to £13.9m current year; 10.3% to £16.1m next year;
  • 4.9% rise in adj PAT to £10.4m current year; 10.9% to £12.2m next year;
  • 5.1% rise in adj EPS to 18.4p current year; 10.8% to 21.8p next year;
  • 5.0% increase in DPS to 12.5p current year; 10.9% to 14.3p next year.

Our new forecasts are set out in Exhibit 1, page 2. This does not, in our opinion, fully reflect the positive impact of the Fintel 5 year distribution agreement.

Valuation: At 520p in our view, Tatton share price reflects its record and prospects of high revenue, profit and dividend growth.

Tatton Asset Management’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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