Tatton Asset Management “trading well and remains financially strong” says Zeus Capital

Tatton Asset Management plc (LON:TAM) trading update reveals 17% rise in assets under management (AuM), double digit revenue growth, and an increasing operating margin as the business scales. The outlook is positive. Highlights are:

  • 12.6% rise in 1H Group Revenues to £11.0m (1H last year: £9.7m);
  • 21.9% rise in 1H adj operating profit to £5.0m (1H last year: £4.1m);
  • 17.4% rise over 6 months in AUM to £7.8bn on 30 September 2020, n.b. From 31 March 2020 the WMA balanced index rose 11.6% to 4510;

­   Market movements added 12.5% to AUM (i.e. Tatton outperformed WMA);

­   1H net inflows of £328.1bn were 4.9% of opening AUM (i.e. c 10% annualised net inflows);

  • 3.0% rise in Paradigm Mortgage Services member firms to 1,591
  • 2.5% rise in Paradigm Consulting member firms
  • Interims will be announced on Wednesday, 18 November 2020   

Outlook: Positive statement says the group has “adapted seamlessly to the new trading environment and have maintained face-to-face engagement with our IFAs, where possible. We have also redeployed resources to direct online engagement, running multiple interactive virtual events and frequent video investment updates ….. Tatton continues to make progress increasing new firm numbers.” The commentary concludes: “the Group is well positioned to take advantage of the opportunities that lie ahead, and we remain optimistic and confident the Group will continue to grow and make progress.”

Zeus view: Despite Covid-19,Tatton is trading well and remains financially strong.

Tatton‘s AUM on 30 September 2020 was £7.8bn (we expected £7.5bn), mainly due to outperformance relative to the WMA Balanced Index. In October the WMA index has risen a further 1.6%. Assuming flat markets and net inflows of £80m a month over the next 6 months, we expect Tatton’s AUM to reach £8.4bn by 31 March 2021. We maintain our estimated average AUM of £7.5bn (i.e. 14% rise yoy). 

With 1H revenue of £10.956m and 1H operating profit of £5.030m (i.e. 45.9% operating margin), we continue to expect full year revenue of £22.0m and £10.0m operating profit (i.e. 45%), which prudently implies no 2H/1H revenue or profit growth.   

Valuation: At 283p, in our view, Tatton share price reflects its record of double-digit revenue and profit growth. Tatton is trading on fully diluted historic PER of 23.6x and 3.4% dividend yield; on our 2021 forecasts which assume current market levels and £0.48bn of net inflows over the next 6 months, Tatton is trading on 21.6x PER and 3.6% dividend yield.

Tatton Asset Management has a strong balance sheet, substantial surplus net cash, and a cash generative business model, which enables it to pay dividends

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