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ESG specialist manager delivering its strategy

Gresham House 4 May 2022 Initiation
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Gresham House

ESG specialist manager delivering its strategy

Initiation of coverage

Financial services

4 May 2022

Price

925p

Market cap

£350m

Net cash (£m) at end December 2021

40.3

Shares in issue

38.0m

Free float

90%

Code

GHE

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.5

2.8

10.7

Rel (local)

0.9

3.7

5.4

52-week high/low

1005p

765p

Business description

Gresham House is a specialist alternative asset manager focused on sustainable investments with strategies in public and private equity and real assets including forestry, renewable energy, battery storage, housing and sustainable infrastructure. At end 2021 AUM stood at £6.5bn.

Next events

AGM

12 May 2022

Analyst

Andrew Mitchell

+44 (0)20 3681 2500

Gresham House is a research client of Edison Investment Research Limited

Gresham House has a strong position in alternative asset management with a sustainability focus, areas that are expected to experience continued strong growth. Many of the real assets managed are deemed to offer a measure of inflation protection. Most assets managed are in long-term structures generating an average gross revenue margin of 1%. The group is ahead of schedule in delivering its five-year plan and has established a successful track record for acquisitions. Employees are aligned with shareholders, holding c 10% of the shares.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/21

70.4

20.2

49.3

10.0

18.8

1.1

12/22e

74.2

25.9

52.1

13.5

17.7

1.5

12/23e

84.4

30.8

58.6

17.0

15.8

1.8

12/24e

95.3

36.8

67.1

24.0

13.8

2.6

Note: *PBT and EPS (diluted) are adjusted, excluding performance fees, realised gains, amortisation and depreciation, exceptional items and share-based payments related to acquisitions.

Strategy for growth

Gresham House has recorded strong growth since the management buy-in led by CEO Tony Dalwood in 2014, with compound annual AUM growth of 42% since 2018. It is established as a specialist manager of relatively differentiated assets and it is now clearly focused on sustainable investing. The majority of its benchmarked investment products have outperformed over longer periods and maintaining this is naturally a priority within the five-year strategic plan, GH25, initiated in 2020. Other goals include being a leader in sustainable/ESG investing, to have a significant market share in specialist products (already true for forestry, battery storage and VCTs), to extend its international presence, to enhance the brand and to increase client diversification. Financial targets include reaching AUM of £8bn or more, EBITDA margins of 40% plus and an average ROCE of 20% over the medium term.

Outlook

It is too soon to gauge how the uncertainty created by the war in Ukraine may affect Gresham House’s fund-raising plans this year, but the resilience of the equity market so far provides some comfort. Also, the long-term growth in and appetite for sustainable investment assets is likely to remain as a tailwind for the company with any near-term dip likely to be offset subsequently. Gresham House identifies substantial opportunities for growth across the five strategies under which it already manages funds and mandates. Acquisitions could add further capabilities and scale but would only be considered where fit and financial criteria align. Management’s record on M&A to date provides confidence.

Valuation

We have compared Gresham House value measures with selected peers and it trades between European and North American average P/Es and noticeably below EV/EBITDA multiples for both (see page 14). A DCF model suggests the current share price implies a discount rate of over 17%, which appears distinctly cautious on the assumption that the group meets our estimates.

Investment summary

Company description: Fast-growing specialist asset manager

Gresham House is a specialist asset manager with an emphasis on private assets and sustainability. Its five investment strategies are split between Strategic Equity (public and private equity) and Real Assets (forestry, new energy and sustainable infrastructure, and real estate). The group is the UK’s largest commercial forestry asset manager, manages Europe’s largest battery storage investment company and is the second largest venture capital trust (VCT) manager in the UK. With expertise across these mainly specialist areas, it can claim to be differentiated from many asset managers. The structural shift towards sustainable investing creates a favourable market background that should persist through fluctuations in market sentiment supplementing the company’s own initiatives to continue the strong growth it has already recorded. Gresham House indicates that its shares may qualify for Business Relief for Inheritance Tax.

Financials: Strong results reported and resources to grow

The 2021 results, reported in March, showed assets under management (AUM) up 65%, net core income 51% ahead and adjusted operating profit and the dividend both increased by 67%. The end-2021 balance sheet was strong with no debt, cash and realisable assets of over £78m and a revolving credit facility of £20m, leaving it well placed to pursue its near-term plans to invest to support AUM growth and to meet deferred acquisition payments.

Sensitivities

As for other asset managers, there will be some sensitivity to equity market movements, but this is significantly modified by the group’s exposure to real assets and private equity where valuations are either uncorrelated with equity markets or much less volatile because of the lags inherent in private market valuations. The length of management contracts reduces exposure to volatility in flows. Other potential areas of sensitivity include key person, acquisition execution, changes in regulation, changes in rules relating to VCTs and maintenance of in house and investment process sustainability standards.

Valuation

The chart below shows the range of values implied when we put Gresham House shares on peer group multiples for 2022e, those implied by transactions involving comparator companies and finally the range indicated by our discounted cash flow (DCF) model, assuming a 3% long-term growth rate and discount rates between 8% and 17%.

Exhibit 1: Valuation ranges based on peers, transactions and DCF

Source: Edison Investment Research, Refinitiv. Note: Peer multiples for 2022e. The markers show average values and, for the DCF valuation, the value at a discount rate of 10%.

From investment company to specialist asset manager

A fresh start and strong growth

Gresham House has a long history dating back to its incorporation in 1857 and was on the Official List from 1950 to 2014, operating as an investment trust from 1966. A management buy-in team led by Tony Dalwood initiated a new direction for the company in December 2014, aiming to develop the company organically and through acquisition as an asset management business managing and investing in relatively differentiated, specialist or illiquid assets. In conjunction with the change in direction the company transferred to AIM.

As a starting point the company established a strategic equity investment team to manage funds using an approach Tony Dalwood had employed previously, including during his period managing Strategic Equity Capital from its launch in 2005. This involved applying private equity techniques in managing public equity investments and Gresham House won its first mandate in July 2015 for Spark Ventures (which became Gresham House Strategic).

In 2015 Gresham House also acquired Aitchesse, giving it an entry into real assets and forestry asset management. By the end of 2021 forestry was to account for 45% of group AUM at nearly £3bn.

Growth from 2015 proceeded through a combination of organic development and acquisitions. The acquisition history is set out below, with the purchases adding capabilities and geographical reach, providing the basis for further organic growth. The weighted average EBITDA/profit multiple for the acquisitions was 6.0x and the percentage of AUM 3.5%.

Exhibit 2: Acquisition history (£m unless shown)

Company

Date

Activity

AUM

Consideration

EBITDA/ PBT multiple

EV/AUM
%

Initial

Total

Aitchesse

Nov-15

Forestry asset management

193

4.3

7.6

4.4

2.2

Hazel Capital

Oct-17

Manager of new energy infrastructure

86

0.6

13.6

1.6

0.7

FIM

May-18

Forestry and new energy management

893

21.8

26.6

6.5

2.4

Livingbridge

Nov-18

Venture capital management including Baronsmead VCTs plus micro-cap and multi-cap income funds

476

30.0

37.5

6.0

6.3

TradeRisks

Mar-20

Fund management and debt advisory in the housing and social infrastructure sectors

184

13.2

16.2

6.2

7.2

Appian Asset Management (Ireland)

Jun-21

Management of a range of traditional and alternative asset classes

306

3.3

6.2

11.6

1.1

Mobeus

Oct-21

Venture capital management including four VCTs

369

23.4

31.1

5.2

6.3

Burlington Real Estate (Ireland)

Mar-22

Property asset management and development in Ireland

286

1.5

2.3

3.9

0.5

Source: Gresham House, Edison Investment Research. Notes: EBITDA and PBT multiples and percentage of AUM are based on initial consideration. The Appian acquisition included €0.95m cash and adjustment has been made for this.

Looking at how the acquisitions contributed to the development of Gresham House, we would add the following points. The Hazel Capital acquisition introduced expertise in new energy, including battery storage, which enabled the subsequent launch and initial public offering (IPO) of the Gresham House Energy Storage Fund (GRID: follow link to Edison research). FIM added substantially to the forestry management business and Livingbridge gave access to the VCT market under the Baronsmead brand, which also includes micro-cap and multi-cap income funds. TradeRisks brought management of affordable housing (within the real estate segment of real assets) to the product list including management of Residential Secure Income (ReSI REIT). This activity has recently extended to Ireland through the Burlington acquisition. Appian was another acquisition in Ireland adding to the list of public equity funds within Strategic Equity and giving the group an EU-based alternative investment fund manager (AIFM). Also in 2021, the private equity capability was strengthened through the purchase of Mobeus, which added four VCTs taking the total AUM in this area to nearly £0.9m.

In the period since 2015 the group pursued an organic growth strategy involving marketing, additional fund-raising and new fund launches to build on the growing capabilities and capacity of the asset management team. Exhibit 3 shows some highlights in this process.

Exhibit 3: Organic growth highlights

Date

Event

2015

Appointed investment manager of Spark Ventures (renamed Gresham House Strategic) c £40m AUM

2016

Gresham House Strategic Public Equity LP first close c £24m AUM including co-investment

2017

Gresham House British Strategic Investment Fund LP (BSIF) first close £150m AUM

2018

Launch and IPO (£100m) of Gresham House Energy Storage Fund (GRID)

2019

Baronsmead VCTs raised £44m

Appointment by AXA IM Real Assets to manage Irish forestry portfolio

Placement of new equity in GRID raising £100m (enabling a £200m increase in AUM)

2020

Won investment management contract for Strategic Equity Capital (£150m)

Gresham House British Strategic Investment Fund LP close (£300m AUM)

Gresham House Forest Fund I LP close (£108m)

2021

Inflows into Strategic Equity open-ended and VCT funds £206m

New equity raised for GRID (£100m)

New forestry fund, Gresham House Forest Growth and Sustainability LP (£202m raised)

Second sustainable infrastructure fund BSIF II LP raised £150m

Launch of Gresham House Residential Secure Income LP (ReSI LP) with commitments of £120m at end 2021

Won Australian forestry mandate from Axa IM Alts (£430m)

Date

2015

2016

2017

2018

2019

2020

2021

Event

Appointed investment manager of Spark Ventures (renamed Gresham House Strategic) c £40m AUM

Gresham House Strategic Public Equity LP first close c £24m AUM including co-investment

Gresham House British Strategic Investment Fund LP (BSIF) first close £150m AUM

Launch and IPO (£100m) of Gresham House Energy Storage Fund (GRID)

Baronsmead VCTs raised £44m

Appointment by AXA IM Real Assets to manage Irish forestry portfolio

Placement of new equity in GRID raising £100m (enabling a £200m increase in AUM)

Won investment management contract for Strategic Equity Capital (£150m)

Gresham House British Strategic Investment Fund LP close (£300m AUM)

Gresham House Forest Fund I LP close (£108m)

Inflows into Strategic Equity open-ended and VCT funds £206m

New equity raised for GRID (£100m)

New forestry fund, Gresham House Forest Growth and Sustainability LP (£202m raised)

Second sustainable infrastructure fund BSIF II LP raised £150m

Launch of Gresham House Residential Secure Income LP (ReSI LP) with commitments of £120m at end 2021

Won Australian forestry mandate from Axa IM Alts (£430m)

Source: Gresham House, Edison Investment Research

In the last five years organic AUM growth (net fund flows, fund launches and performance) has ranged between 55% and 23%, with 2021 seeing a 50% increase (see chart below).

Exhibit 4: Organic AUM growth

Source: Gresham House

The next table gives a view of the substantial growth in the business resulting from the organic and M&A steps highlighted above. Accompanying the growth in AUM, staff numbers have risen to an average of 173 in 2021 with the implied management fee rate and fee income per person broadly stable since 2018. Following the initial build up phase following the management buy-in, the business moved into adjusted operating profit in 2018 and reported operating profit in 2020. The adjusted operating profit margin has been close to or above 30% since 2018.


Exhibit 5: Selected indicators for Gresham House since 2015 (£m unless stated)

Year-end AUM

Fee income

Implied fee rate (bp)

Average number of staff

AUM per person

Fee income per person (£)

Adjusted operating profit margin (%)

Adjusted operating profit

GAAP operating profit

2015

242

0.3

N/A

12

20

27,750

(134.4)

(1.8)

(3.8)

2016

363

3.2

106

26

14

123,154

(68.8)

(2.4)

(3.4)

2017

649

5.7

113

32

20

181,406

(11.0)

(0.7)

(2.4)

2018

2,268

13.7

94

55

41

249,400

20.1

3.0

(0.9)

2019

2,797

31.4

124

87

32

361,230

32.4

10.3

(0.8)

2020

3,970

40.3

121

113

35

356,673

29.6

12.1

1.9

2021

6,538

62.2

125

173

38

359,318

32.7

20.2

16.3

Source: Gresham House, Edison Investment Research. Note: Fee income excludes performance fees, dividend and interest income and other income. Adjusted operating profit is before performance fees, realised gains, exceptional items, depreciation and amortisation, acquisition-related share-based payments, net gains/losses on investments and other fair value movements. The implied fee rate is based on average reported period-end AUM levels so does not capture the timing of intra-period flows/additions.

Current AUM mix and investment strategies

Exhibit 6 gives an overview of the make-up of Gresham House’s AUM at end 2021, with an analysis of management fee and operating profit contributions together with fee rates. Below this is the split of client and fund types. Real assets account for over 70% of AUM but a lower proportion of management fees and adjusted operating profit, reflecting the lower average fee rate that applies in this segment and relatively higher costs in managing these assets. The higher average fee rate for Strategic Equity is driven by the private equity/VCT component. The result is that this segment contributed 42% of profit compared with 29% of AUM.

Wholesale/retail and institutional clients each account for 41% of AUM while the fund type analysis underlines the long-term nature of the mandates held by Gresham House. Open-ended funds only account for 12% of AUM with the remainder closed-ended or listed. The average contract life of limited partnership funds was 14 years. There is therefore a good level of revenue visibility.

Exhibit 6: Gresham House in numbers

Analysis by strategy

Category

AUM
(%)

Management fees*
(%)

Adj. operating profit** (%)

Fee rate***
(bp)

Public equity

16

80

Private equity

14

230

Strategic Equity total

29

37

42

162

Forestry

45

80

New energy and sustainable infrastructure

19

100

Real estate

7

140

Real Assets total

71

63

58

110

Total

100

100

100

125

Value

£6,538m

£62.2m

£38.4m***

Client and fund type

Client type

% of AUM

Fund type

% of AUM

Wholesale/retail

41

Listed

34

Institutional/local govt pension schemes/charity

41

Limited partnership

33

High net worth/family office

18

Segregated mandate

21

Open-ended

12

100

100

Source: Gresham House, Edison Investment Research. Notes: All figures for FY21. *Management fee excluding performance fees. **Operating profit before £18.2m central cost. ***Fee rates for Strategic Equity, Real Assets and group totals are our own calculations based on reported revenue and the average of period-end AUM levels. Other figures are gross revenue margins indicated by company.

Next we give a brief outline of the investment approaches taken in Gresham House’s funds, which are divided into two divisions and five strategies.

Strategic Equity

Public Equity (£1,037m AUM): the approach here mimics that taken in private equity with a hands-on approach to all stakeholders in investee companies to identify value creation and recovery opportunities. There is a focus on the quality of management teams and attractive business fundamentals.

Private Equity (£887m AUM): the strategy is focused on areas of structural growth and where the team has experience including scaling up software and healthcare, consumer and services businesses that are digitally driven. Specialised in-house talent and technology teams are differentiators, which help attract investee companies and add value to them subsequently.

Real Assets

Forestry (£2,953m AUM) is a real asset class that can be used to diversify portfolios and is deemed to provide a measure of protection against inflation. Investment in forestry gives exposure to both timber and the underlying land value. Returns depend on timber prices and biological growth. Timber prices can show volatility and have risen substantially in recent years but in less favourable circumstances the forest owner has the flexibility to postpone harvesting. The Gresham House Forestry team has experience in the UK, Ireland, the Baltics and New Zealand, and has recently added a mandate in Australia. Gresham House is now the sixth largest timber investment management organisation globally. Gresham House aims to carry out planting in a way that is more sustainable and creates greater biodiversity, backing this and other sustainability ambitions up by setting out commitments in a Forestry Charter against which it will measure its performance. A new global fund to be launched this year will focus on sustainable forest assets in established softwood growing areas and will make a significant allocation to forest assets generating carbon credits, a source of further diversification.

New Energy and Sustainable Infrastructure (£1213m AUM): this strategy is focused on transformative technologies and industries that Gresham House believes will deliver strong financial, social and environmental returns while supporting a transition to a more sustainable world. The team has identified six target sub-sectors where real asset-based solutions have the potential to create the biggest impact and financial reward: decarbonisation, digital inclusion, health and education, regeneration, resource efficiency and waste solutions. As an example, the team has been investing in new energy (including onshore wind and solar power generation together with battery energy storage systems) for over a decade, navigating the complexities of changing markets and regulation. As noted earlier, the group manages GRID, the largest battery storage investment trust in the UK.

Real estate (£448m AUM) invests in UK housing to address different areas of the shortfall in affordable housing. The goal is to generate stable and secure inflation-linked returns while providing social and environmental benefits to residents and the wider community. Investments include shared ownership, affordable private rented, retirement and temporary accommodation and social housing. All investments are predicated on providing high-quality, fairly priced homes that are affordable to most of the UK population. The team has extensive industry experience and a wide network of contacts and advisors that facilitates delivery of value over the long term.

Group strategy: GH25 and beyond

In March 2020 Gresham House set out its five-year strategy, GH25, which includes strategic goals and specific financial targets. The six strategic goals are as follows:

1.

To be a leader in sustainable investment and governance. The group established a Sustainability Committee and a corporate sustainability strategy during 2021. A first Sustainable Investment Report was published and the Stewardship Report was approved by the Financial Reporting Council. A Diversity, Equality and Inclusion committee has also been formed and actions taken to improve diversity.

2.

That the majority of benchmarked investment products are outperforming. Many products have strong long-term performance with 2021 year-end data showing that mature retail forestry funds reported an average return of over 13.6% since inception; GRID has achieved a total return of 14.2% since IPO; BSIF Infrastructure recorded an internal rate of return of 16.2%; and the UK Multi Cap Income fund ranked second in the UK Equity Income sector over three years and first since launch (June 2017).

3.

Have a significant market share in specialist products. GRID is the largest battery storage investment trust in the UK; Gresham House is the largest commercial forestry manager in the UK and, as mentioned, the sixth largest timber investment management organisation; and the group is the second largest VCT manager in the UK.

4.

Develop the business internationally. Following the acquisition of Appian in 2021 the group has an EU-regulated asset manager and with this year’s purchase of Burlington is in a position to develop its real estate management activities in Ireland, where it is also undertaking forestry investment. Other international forestry management mandates are in New Zealand and Australia.

5.

Enhance the Gresham House brand. As the business has grown and increased its marketing work accordingly it has developed a higher profile and seen its funds recognised in a number of awards.

6.

Increase client diversification and depth. The client list has expanded with the development of the business: there are 13 UK local government pension schemes as investors, corporate pension fund investors were added through ReSI LP, new institutional investors for forestry funds and an increasing number of wholesale clients have been acquired, with an example being the inclusion on the St. James’s Place panel for a number of funds.

The group set four financial targets aiming to double shareholder value over five years. The targets do not assume further acquisitions. Our estimates suggest the group is on track to reach some of these targets ahead of schedule:

1.

AUM to reach £8bn plus (this was increased from £6bn in November 2021 and the group reached £6.5bn at end 2021).

2.

EBITDA margin of 40% plus (32.7% reported for 2021).

3.

Return on capital employed of 20% plus over the medium term (originally set at 15% plus by the end of the five-year period). We estimate nearly 20% for 2023.

4.

Pay a dividend that is 3x covered by adjusted operating profit. Our estimate for 2024 is a 3x covered dividend of 24p.

Management sees the potential for further significant growth beyond the end of GH25 given investor appetite for sustainable funds and capacity for investment within the existing strategies (this is outlined in the Background and Outlook section). Therefore, our expectations for 2024 are set on the assumption that Gresham House will still be bearing the costs of continuing investment in people and systems to support further growth but will have seen the benefits of operating leverage, allowing it to reach the 40% target operating margin.

Management

Members of the management and investment committees (see Exhibit 7) bring together substantial collective experience of financial markets and management. Tony Dalwood highlights the benefits that this experience continues to bring, particularly given the relatively recent relaunch of the business following the management buy-in and the role that acquisitions have played since then. In the case of Rupert Robinson and Samee Khan, Tony Dalwood worked with them in previous roles, while other members of the team have now worked together for a number of years, strengthening communication and coordination. On the investment committee, the input from independent voices (Bruce-Carnegie Brown and Simon Stilwell, who is also on the group board as a non-executive director) is valued highly. In addition the group board includes other non-executive directors with significant City, financial and business experience: Anthony Townsend (chairman), Rachel Beagles, Sarah Ing (to be appointed following the 2022 AGM), Richard Chadwick (to retire following the AGM) and Gareth Davis.

Exhibit 7: Gresham House management and investment committees

Role

Experience

Management committee

Tony Dalwood

Chief executive officer

CEO since 2014 having previously established SVG Investment Managers and then led SVG Advisors (formerly Schroder Ventures (London) Limited) as CEO. He was an adviser to Lloyds Development Capital (LDC) and began his career at Phillips & Drew Fund Management.

Rupert Robinson

Managing director, Gresham House Asset Management

Has held this role since 2015 and previously was CEO and CIO of Schroders Private bank (UK) for 11 years and prior to that spent 17 years at Rothschild Asset Management, latterly as head of private clients.

Kevin Acton

Group CFO

Over 20 years of financial and operational experience in private equity including roles at Oaktree Capital Management and 3i.

Andy Hampshire

Chief operating officer and chief technology officer

Technology, operations and business experience gained in prior roles at LDC and within Lloyds Bank. Andy joined the group in 2017 as CTO.

Samee Khan

Chief legal officer and company secretary

Over 22 years’ legal, commercial and financial experience in both public and private equity. Appointed April 2019. Previously had roles at Abu Dhabi Investment Authority and at SVG (alongside Tony Dalwood).

Investment committee

Tony Dalwood

as above

Kevin Acton

as above

Bruce-Carnegie Brown

Chairman of Lloyds of London

Chairman of Lloyds of London since 2017, also vice-chairman at Banco Santander, and chairman of Cuvva, an app-based motor insurance provider. Held previous executive roles at Marsh UK & Europe, JP Morgan and 3i.

Rupert Robinson

as above

Simon Stilwell

Non-executive director, Gresham House board

20 years’ experience in the City. Was CEO at Liberum until 2015, having been a co-founder in 2007. Previous positions at Collins Stewart and Beeson Gregory and he was CEO at Bonhill group, a digital media and events business.

Source: Gresham House

2021 results: AUM up 65%, operating profit up 67%

During 2021 AUM increased by 65% to £6.5bn with growth including strong net inflows of nearly £1.2bn (29% of opening AUM) across its strategies, while performance added approaching £0.8bn (+20% overall, including 29% in forestry) and acquisitions £0.6bn (Appian in Strategic Equity and Real Estate and the Mobeus VCT business). Within the total increase in AUM of £2.6bn, organic growth was £1.9bn (c 50%).

Exhibit 8 gives an analysis of the 2021 P&L compared with the prior two years. Gross core income increased by just over 50% in line with the increase in average AUM. Administrative overheads rose by 43% including a 49% increase in staff costs. The year-end full time equivalent headcount stood at 185 compared with 122 in 2020. The increase in costs was partly due to the acquisitions of Appian and Mobeus and higher office costs. This left adjusted operating profit at £20.2m (up 67%) and the adjusted operating margin increased from 29.6% to 32.7%. Net performance fees of £1.7m and £1.8m of net realised gains resulted in an 81% increase in adjusted operating profits including these items.

After amortisation and depreciation, acquisition related share-based payments, exceptional items, net gains on investments and other items (a total net deduction of £7.3m), reported operating profit before tax was £16.3m compared with £1.9m. Reported diluted EPS increased from 1.8p to 32.6p while the adjusted diluted EPS was up 50% at 49.3p.

Reflecting the strong results and a confident outlook, the group announced a 67% increase in the dividend to 10p.

Exhibit 8: 2021 P&L comparison

£’000s unless indicated

2019

2020

2021

% change

Gross core income

33,107

42,138

63,345

50.3

Rebates, distribution and fundraising costs

(1,383)

(1,364)

(1,736)

27.3

Net core income

31,724

40,774

61,609

51.1

Administration overheads (ex depcn, amort, excpnls & acqn-related SBP)

(21,047)

(28,690)

(41,128)

43.4

Finance costs

(390)

(25)

(311)

Adjusted operating profit/(loss)

10,287

12,059

20,170

67.3

Performance fees net of costs

200

0

1,714

Realised gains net of costs

1,332

1,008

1,773

75.9

Adjusted operating profit including performance fees and realised gains

11,819

13,067

23,657

81.0

Reconciliation to reported pre-tax operating profit

Amortisation and depreciation

(8,527)

(8,931)

(9,475)

6.1

Acquisition-related share-based payments

(593)

(593)

(1,067)

79.9

Exceptional items

(1,063)

(1,775)

(3,215)

81.1

Net gains/(losses) on investments and other fair value movements

(2,463)

134

6,224

Other

0

0

196

Reported operating profit/(loss) before tax

(827)

1,902

16,320

Profit/(loss) from discontinued operations

55

(12)

(14)

16.7

Foreign exchange movement on translation of foreign subsidiary

0

0

(158)

Non-controlling interest

(55)

(229)

(264)

15.3

Net income attributable to equity holders

(850)

577

11,777

Basic EPS (p)

(3.2)

1.9

34.8

EPS - diluted (p)

(3.2)

1.8

32.6

Adjusted, diluted EPS (p)

31.2

32.9

49.3

49.8

Dividend per share (p)

4.5

6.0

10.0

66.7

Source: Gresham House, Edison Investment Research

Background and outlook

In the right place: growth in sustainable investment

The growing trend towards allocation to alternative investments and sustainable funds is well established, reflecting a combination of many factors. These include regulation, greater ESG disclosure, increasing concern over climate change, a realisation that there may be no performance penalty in pursuing a sustainable investment strategy (rather the reverse) together with a desire to have a positive impact for the greater good. This has driven a rapidly accelerating appetite from both retail/wholesale and institutional investors and is illustrated by the trends in AUM and flows into global sustainable funds.

Exhibit 9: AUM of sustainable funds globally

Exhibit 10: Investment flows into sustainable funds

Source: United Nations: The rise of the sustainable fund market

Source: United Nations: The rise of the sustainable fund market

Exhibit 9: AUM of sustainable funds globally

Source: United Nations: The rise of the sustainable fund market

Exhibit 10: Investment flows into sustainable funds

Source: United Nations: The rise of the sustainable fund market

Forecasts from a range of data providers and consultancies point to further significant growth over the medium to longer term. In one example, a Bloomberg report suggested that global ESG assets could rise from $37.8tn in the current year to $53tn by 2025 based on a growth rate of 15%, half the rate of the prior five years. PwC Luxembourg has been reported as looking for European ESG assets to account for between 41% and 57% of total mutual fund assets, up from 15% in 2019. In a press release on its 2022 global alternatives report, Preqin indicated that it expects alternative managers’ AUM will rise from $13tn to $23.2tn by the end of 2026, noting that ESG factors have become increasingly important among alternative assets.

While these data points may not read across directly to the product set that Gresham House offers, they do indicate the broad growth in alternative and sustainable investment and tend to confirm that it is operating in a segment of the market that is seeing strong growth. As noted earlier, the group has strong positions in areas such as forestry, battery storage and, within private equity, VCTs.

The next question to ask is whether there is scope to increase scale in the areas these strategies address. Gresham House has set out the size of some of the opportunities within the existing strategies (see table below), which indicate substantial room to increase overall AUM.

Exhibit 11: Scope for growth in existing strategies

Strategy

Existing capacity/level

Current pipeline

Market opportunity/capacity

New Energy battery storage

GRID current capacity 0.4GW

1.1GW

15 GW needed by National Grid by 2025

Sustainable infrastructure

Current committed capital £0.2bn

£1.6bn

Opportunity across six subsectors over £1tn

Real Estate - UK Housing

Current committed capital £0.3bn (1,499 homes)

£1.4bn

(13,000 homes)

£10bn per annum (half shared ownership and half build to rent)

Forestry

£0.6bn acquired 2021

£0.5bn

Over £10bn pa forestry acquisition market

Strategic Equity - Public

£1.0bn

Capacity in existing products £2.5bn

Strategic Equity - Private

£0.9bn

Capacity in VCTs £1.5bn

Source: Gresham House

The group acknowledges that the war in Ukraine1 will cause risk premia to rise, which will affect valuations, but notes that (outside public equity) its asset classes have long-term time frames and that the growing demand for its products should be sustained. The board therefore expresses confidence in delivering further growth in the current year and beyond.

  Gresham House has reported that funds managed by the group do not own any Russian assets and have minimal exposure to assets that are subject to sanctions. Nor does the group have any Russian domiciled shareholders on its share register and it is not aware of any Russian investment in the funds it manages.

Exhibit 12: State Street Investor Confidence Index*

Exhibit 13: Economic Policy Uncertainty Index, Europe

Source: Refinitiv, State Street. Note: *Index is for Europe.

Source: 'Measuring Economic Policy Uncertainty' by Scott Baker, Nicholas Bloom and Steven J. Davis. www.PolicyUncertainty.com.

Exhibit 12: State Street Investor Confidence Index*

Source: Refinitiv, State Street. Note: *Index is for Europe.

Exhibit 13: Economic Policy Uncertainty Index, Europe

Source: 'Measuring Economic Policy Uncertainty' by Scott Baker, Nicholas Bloom and Steven J. Davis. www.PolicyUncertainty.com.

We do see some risk to nearer-term fund-raising as investors deal with heightened uncertainty surrounding the Ukraine war, sharply rising inflation and rising policy rates (see charts above showing relatively modest recent weakness in the European State Street Investor Confidence Index and, unsurprisingly, a sharp spike in the Economic Policy Uncertainty Index Europe). However, on a medium-term view the positive trend in sustainable investing highlighted above and the specific alternative asset management capabilities that Gresham House has brought together do seem to support the group’s positive stance. As we set out in the next section, we have assumed in our estimates that the group does continue to generate good AUM growth.

Financials

We set out our key estimate assumptions in Exhibit 14. Starting with AUM, our estimates are for total growth of between 14% and 15% for 2022–24. This is equivalent to an average increase of just below £1bn per annum, excluding this year’s acquisition of Burlington, which compares with average organic growth of £1.4bn for 2020–21. Within this we assume that net flows account for 10–11% per annum and performance 4%.

In terms of mix we have assumed faster growth for Real Assets than Strategic Equity at 16% compound annual growth versus 11% reflecting the respective growth opportunities in each area. This explains a reduction in the average asset management fee rate from 125bps (2021) to 102bps (2024e). This flows through to 15% compound annual growth in net core income and 21% for adjusted operating profit. Adjusted operating profit margin increases from the 33% recorded in FY21 to 40% in FY24, meeting the GH25 target.

We have not assumed any performance fees or realised gains in our estimates and these could create added value over the long-term. Likewise, in estimating reported profit (see the lower section of table) we do not include any exceptional items or net gains or losses on investments.

Further details of our estimates are shown in the financial summary (Exhibit 22) including our assumed dividend payments for the next three years, with cover in 2024 matching the group’s 3x objective (using adjusted earnings).

Exhibit 14: Key P&L assumptions and reconciling adjusted to reported profit

£’000s unless indicated

FY21

FY22e

FY23e

FY24e

Performance (£m)

777

254

290

331

Net flow (£m)

1,166

715

750

890

Total AUM change (£m)

2,568

969

1,040

1,221

End year AUM (£m)

6,538

7,507

8,546

9,767

Asset management fee rate (bps)

125

117

118

102

Asset management income

62,162

72,669

82,880

93,769

Other income

1,183

1,540

1,540

1,540

Gross core income

63,345

74,209

84,420

95,309

Rebates, distribution and fundraising costs

(1,736)

(2,085)

(2,378)

(2,691)

Net core income

61,609

72,124

82,041

92,618

Administration overheads (ex depcn, amort, excpnls & acqn-related SBP)

(41,128)

(45,984)

(51,078)

(55,571)

Finance costs

(311)

(200)

(200)

(200)

Adjusted operating profit

20,170

25,940

30,763

36,847

Adjusted operating profit margin (%)

33

36

37

40

Performance fees net of costs

1,714

0

0

0

Realised gains net of costs

1,773

0

0

0

Adjusted operating profit including performance fees and realised gains

23,657

25,940

30,763

36,847

Reconciliation to reported pre-tax profit:

Net non-core activity

38

0

0

0

Amortisation and depreciation

(9,475)

(15,413)

(14,408)

(14,029)

Acquisition-related share-based payments

(1,067)

(1,000)

(1,000)

(1,000)

Exceptional items

(3,215)

0

0

0

Net gains/(losses) on investments and other items

6,224

160

160

160

Add back FX movement on translation of foreign subsidiary

158

0

0

0

Reported pre-tax profit

16,320

9,687

15,516

21,978

Source: Gresham House, Edison Investment Research

The next table gives a summary of cash flows over the last five years, which provides a useful overview of how the group’s growth has been financed over this period. Our comments here relate to the five-year total figures unless stated. Operating cash flow moved from an outflow in 2017 to significant inflows in 2020–21 as the group expanded and benefited from operational leverage. Over the period shown the net operating cash inflow was nearly £44m.

Cash elements of initial and deferred acquisition payments and a management contract purchase totalled £54.5m. The net £5.4m investment in DevCo projects reflects investment in battery storage projects, which form part of the investment pipeline of GRID. The sale of these projects generated investment gains for the group. The sale of investment properties (raising £12.9m) represented the final unwinding of the legacy assets from Gresham House’s days as an investment trust. The overall net outflow from investing activities was £53m.

Equity and warrant issuance is the main item within financing cash flows at nearly £77m, partly offset by share-based payment settlements of £17.7m and dividend and other payments of £6.3m. This left cash flow from financing at £53m and a net cash inflow over the period of £43m.

Exhibit 15: Summarised historical cash flow

£’000s

2017

2018

2019

2020

2021

Five-year total

Net operating cash flow

(1,818)

905

9,203

15,711

19,975

43,976

Acquisitions and deferred consideration

0

(11,855)

0

(17,887)

(1,736)

(31,478)

Purchase of management contracts

0

(23,000)

0

0

0

(23,000)

Net sale/(purchase) of investments

(231)

(3,906)

(797)

2,025

(1,122)

(4,031)

Net proceeds of sale of investment properties

8,178

4,685

0

0

0

12,863

Net investment in DevCo projects

0

0

(1,510)

4,406

(8,247)

(5,351)

Net purchase of fixed and intangible assets

(876)

(242)

(531)

(736)

(1,045)

(3,430)

Other

0

(1,768)

53

186

2,514

985

Cash flow from investing activities

7,071

(36,086)

(2,785)

(12,006)

(9,636)

(53,442)

Dividends

0

0

(795)

(1,351)

(1,881)

(4,027)

Net share issuance, including warrants

7,626

29,520

11,346

7,845

20,487

76,824

Share-based payments settled

0

0

(833)

(7,125)

(9,734)

(17,692)

Other financing activities

0

1,994

(8,795)

(396)

4,904

(2,293)

Cash flow from financing activities

7,626

31,514

923

(1,027)

13,776

52,812

Increase/(decrease) in net cash

12,879

(3,667)

7,341

2,678

24,115

43,346

Opening net (debt)/cash

(3,094)

9,785

6,118

13,459

16,137

(3,094)

Closing net cash/(debt)

9,785

6,118

13,459

16,137

40,252

40,252

Source: Gresham House, Edison Investment Research

Turning next to the balance sheet: at the end of 2021 the group had cash of just over £40m, no debt and investments of £38m. The investments figure includes net investment in battery projects and investments in securities and is adjusted to show the group’s investment exposure rather than the consolidated IFRS 10 basis reported on the balance sheet. On the adjusted basis the group had net realisable cash and investments of £78.3m, compared with £45.1m in 2020. Subsequently it has sold its stake in Rockwood (formerly Gresham House Strategic) generating a substantial total return with a circa 2x money multiple and an IRR well above its 15% target. The sale released £7.6m in cash net of the purchase of a co-investment from Rockwood. The group also has a rolling credit facility of £20m and therefore has headroom to support further AUM growth.

On this point the group has identified the potential to make balance-sheet investments of up to £40m, including: £23–28m in battery and other renewable projects and a climate transition product; £5–7m to warehouse forestry assets; £2m in general partner commitments for new housing investments; £5m as part of its commitment to Strategic Equity Capital; and £5m to demonstrate alignment in a potential private equity mandate. All these investments have been or will be subject to review and challenge by the investment committee with a requirement that they should be compatible with the group’s medium-term 20% return on capital target. Note that we have not included these potential investments or returns from them in our profit and loss and cash flow estimates. We have estimated cash outflows of c £16m for deferred consideration over the 2022–24 period.

Sensitivities

Geopolitical and macroeconomic uncertainties are salient currently and there could be positive or negative surprises in terms of fund flows/launches and valuation/performance. The diversification provided by many of the assets managed by Gresham House should lessen the impact of negative developments and, subject to the need for funds to maintain a marketable performance, would be expected to underpin longer-term growth.

There is key personnel risk in a business such as Gresham House where there could be a material negative effect if key members of the management or asset management team were to leave. In addition to staff remuneration and stock ownership, the company seeks to address this by empowering individuals and encouraging entrepreneurial thinking. Feedback from employee surveys is used to help foster the desired culture and support staff retention.

The group faces the normal risks associated with price and integration when it undertakes acquisitions. These are mitigated by the experience of the management team and a structured approach from due diligence to detailed implementation programmes, which have been successfully executed in the past.

Given its position as a specialist manager of sustainable assets, failure to deliver on its own sustainability objectives in its products and internally would be reputationally damaging. The group has a Sustainable Executive Committee to oversee this and has in place a Sustainable Investment Framework setting out how ESG considerations are integrated into the investment process.

As a regulated firm the group must ensure that it meets its obligations in both the UK and Ireland. Failure to do so would risk reputational damage and is countered by staff training and an independent compliance department.

Products such as VCTs enjoy tax advantages, which might be subject to legislative change. Any change would be unlikely to apply retrospectively and governments will probably want to continue to support early-stage companies, potentially limiting the risk of full removal of these tax breaks.

Valuation

In this section we consider the valuation of Gresham House shares with reference to a peer group comparison, selected transaction metrics and the outputs from our DCF model.

Starting with our peer group comparison, this includes a selection of specialist and alternative fund managers with different profiles and market capitalisations ranging from sub-£0.5m (Gresham House and Foresight) to over £22bn (Partners). For Gresham House we have used our estimated adjusted EPS and EBITDA numbers2 as the basis for multiples, while the comparator multiples are derived from consensus estimates. Gresham House P/E multiples are below the European peer average and above the North American average. The EV/EBITDA multiple for 2022 is noticeably below both peer groups. The rating on both measures is noticeably above the more conventional/larger UK peers, a differential that can be attributed to expected growth rates.

  Recall that these exclude any potential performance fees, gains or losses on investments, movement in the fair value of contingent consideration, share-based payments related to acquisitions, exceptional items and, in the case of EPS, depreciation and amortisation.

Exhibit 16: Asset management comparators

Price
(p)

Market cap (£m)

P/E 2022e
(x)

P/E 2023e
(x)

Dividend yield (%)

EV/EBITDA 2022e (x)

Gresham House

925

350

17.7

15.8

1.1

12.1

Antin Infrastructure Partners

24

3,555

41.1

23.3

0.5

25.6

Bridgepoint

294

2,439

22.6

16.6

N/A

18.5

EQT

26

21,929

29.1

20.0

1.0

25.3

Foresight

387

422

15.6

13.3

N/A

10.8

Impax Asset Management

812

1,083

18.5

16.4

2.5

14.8

Intermediate Capital

1,514

4,427

11.6

11.4

3.7

20.9

Partners

83,135

22,339

23.7

20.8

3.2

20.0

Petershill Partners

248

2,886

11.9

9.8

N/A

N/A

Tikehau Capital

1,822

3,221

16.8

12.4

2.8

12.2

Average

21.2

16.0

2.3

18.5

North American peer average*

15.9

13.7

1.6

24.8

UK asset managers average **

10.5

10.0

6.1

6.1

Source: Refinitiv, Edison Investment Research. Note: Priced at 3/5/22. *Ares, Brookfield, Carlyle, Hamilton Lane, KKR, StepStone. **Ashmore, City of London, Jupiter, Liontrust, Man Group, Polar Capital, Schroders.

Our next two charts look more closely at two enterprise value (EV)-based valuation measures. Exhibit 17 charts EV/AUM against the management fee margins. Apart from Impax, all the peers have a management fee close to or above 100 basis points, reflecting their provision of private equity and/or real asset management services. Impax is an established specialist but its weighted average fee margin of 47 basis points reflects its exposure to listed company investment and to third-party mandates. Gresham House features a significantly below-average EV/AUM valuation and an above-average management fee margin.

Exhibit 17: EV/AUM and management fee rates

Exhibit 18: EV/EBITDA and AUM growth since 2016

Source: Edison Investment Research, Refinitiv, company data

Source: Edison Investment Research, Refinitiv, company data

Exhibit 17: EV/AUM and management fee rates

Source: Edison Investment Research, Refinitiv, company data

Exhibit 18: EV/EBITDA and AUM growth since 2016

Source: Edison Investment Research, Refinitiv, company data

Exhibit 18 compares EV/EBITDA multiples (these are based on last reported figures) with compound annual growth in AUM since 2016. The first point to make here is that all the companies have recorded very strong growth in this period, with an average value of c 30% per annum. Acquisitions and performance have contributed to this to varying degrees, but this level of growth also tends to support the argument that the specialist/alternative areas are attracting relatively strong allocations. Gresham House stands out even more clearly in this chart, trading on a below-average multiple while achieving very strong growth. The starting point for the comparison is at a relatively early stage in Gresham House’s development, but the compound annual growth in AUM since 2018 is a still-strong 42% compared with the average for these companies over the same period of 27%.

Our transaction table below shows valuation measures for a selection of transactions in the alternative asset management sector since late 2019. The rationale for the acquisitions follows the broad theme that the buyers were looking to enhance their capabilities in specialist areas and in some cases to extend their geographical reach. There is quite a wide range of valuations, but on average there is a similarity between the transaction averages and the average for the European peer group shown above.

Exhibit 19: Selected alternative asset management transaction metrics

Date

Buyer

Target

Currency

AUM (bn)

EV/EBITDA (x)

EV/revenue (x)

EV/AUM (%)

Revenue/AUM

Mar-22

EQT

Barings Private Equity Asia

17.7

33.0

22.0

38.4

1.7%

Dec-21

Schroders

Greencoat Capital

£

6.7

31.8

16.7

9.5

0.6%

Oct-21

T Rowe Price

Oak Hill Advisors

US$

44.0

15.6

8.9

8.9

1.0%

Jul-21

StepStone

Greenspring

US$

9.0

28.5

11.4

8.9

0.8%

Jan-21

EQT

Exeter Property

US$

10.2

23.4

13.9

18.3

1.6%

Dec-19

Sun Life

InfraRed

US$

12.0

12.5*

4.7

4.1

1.2%

Average

24.1

12.9

14.7

1.1%

Minimum

12.5

4.7

4.1

0.6%

Maximum

33.0

22.0

38.4

1.7%

European peer average

24.3

13.2

16.4

1.1%

Source: Edison Investment Research, company data, Refinitiv. Note: *Based on Companies House filing showing the reported 2019 P&L; a contemporary press report pointed to a higher, 17.4x EV/EBITDA multiple for InfraRed, based on a 2018 figure.

We have prepared a DCF model and a range of outputs are shown below. The model includes our explicit forecasts to 2024 and then allows for an intermediate period of three years in which operating cash flow grows at a rate of 8%. The central assumptions in the table for discount rate and long-term growth are 10% and 3% respectively. Given the other assumptions, the table shows that, on our estimates, you would have to assume a discount rate of over 17% and long-term growth of 2–3% to match the current share price.

Exhibit 20: Discounted cash flow valuation sensitivity (pence per share)

Discount rate (right)
Long-term growth

8%

9%

10%

13%

17%

1.0%

1,510

1,415

1,328

1,113

903

2.0%

1,550

1,451

1,362

1,138

921

3.0%

1,592

1,489

1,396

1,164

939

4.0%

1,635

1,529

1,432

1,191

958

5.0%

1,680

1,569

1,469

1,219

977

Source: Edison Investment Research

In our final valuation table we have collated the values that are given if we apply the range of earnings and EBITDA multiples for the North American and European peer groups and transactions to Gresham House. For convenience we have also shown the DCF value range using the 3% long-term growth assumption. We have not included the UK asset manager multiples which we included the average in Exhibit 16 given their different profile; using their multiples would produce figures at or below the low end of the range shown in the table below. Within the figures included in the table there is a large range, reflecting the variation in the circumstances of the peers. Taking the average values does narrow the range somewhat to 830p to 1,620p, giving a framework for considering the current valuation in conjunction with the DCF sensitivity table above.

Exhibit 21: Applying peer multiples to Gresham House earnings and EBITDA

Value per share (p)

European peers

North American peers

European peers

North American peers

Transactions

DCF

P/E 2022e

P/E 2022e

EV/EBITDA 2022e

EV/EBITDA 2022e

EV/EBITDA 2021

3% long-term growth

High

2,143

1,099

1,672

2,730

1,872

1,592

Low

604

475

705

793

707

939

Average/central

1,106

830

1,209

1,620

1,368

1,396

Source: Edison Investment Research, Refinitiv

Exhibit 22: Financial summary

December (£'000s unless indicated)

2018

2019

2020

2021

2022e

2023e

2024e

PROFIT & LOSS

Asset management income

13,717

31,427

40,304

62,162

72,669

82,880

93,769

Dividend, interest and other income

781

357

1,632

2,038

1,500

1,500

1,500

Performance fees

0

1,944

0

6,163

0

0

0

Total income

14,498

33,728

41,936

70,363

74,169

84,380

95,269

Administrative overheads

(14,608)

(34,331)

(42,052)

(60,116)

(64,482)

(68,864)

(73,291)

Net operating profit/(loss) before exceptional items

(110)

(603)

(116)

10,247

9,687

15,516

21,978

Finance costs

(42)

(390)

(25)

(311)

(200)

(200)

(200)

Exceptional items

(2,001)

(1,063)

(1,775)

(3,215)

0

0

0

Share of associates’ profits/(losses)

1,718

246

158

4,955

200

200

200

Gains and losses on investments held at fair value

(271)

3,048

4,599

5,842

0

0

0

Movement in fair value of contingent consideration

(209)

(2,065)

(1,163)

(1,659)

0

0

0

Other

40

0

224

461

0

0

0

Operating profit/(loss) before taxation

(875)

(827)

1,902

16,320

9,687

15,516

21,978

Taxation

218

(23)

(1,084)

(4,107)

(1,937)

(3,662)

(5,495)

Discontinued operations and FX movements

11

55

(12)

(172)

0

0

0

Total comprehensive income

(646)

(795)

806

12,041

7,749

11,853

16,484

Non-controlling interest

(53)

(55)

(229)

(264)

(250)

(250)

(250)

Net income attributable to equity holders

(699)

(850)

577

11,777

7,499

11,603

16,234

Adjusted core operating profit

Net core income

14,709

31,724

40,774

61,609

72,124

82,041

92,618

Operating expenses (excl. dep'n and amortisation)

(11,705)

(21,047)

(28,690)

(41,128)

(45,984)

(51,078)

(55,571)

EBITDA (adjusted)

3,004

10,677

12,084

20,481

26,140

30,963

37,047

Finance costs

(42)

(390)

(25)

(311)

(200)

(200)

(200)

Adjusted pre-tax profit/(loss)

2,962

10,287

12,059

20,170

25,940

30,763

36,847

EPS - diluted (p)

(3.9)

(3.2)

1.8

32.6

18.7

28.9

39.4

Adjusted, diluted EPS

14.7

31.2

32.9

49.3

52.1

58.6

67.1

Dividend per share (p)

3.0

4.5

6.0

10.0

13.5

17.0

24.0

BALANCE SHEET

Non-current assets

83,353

78,165

80,339

126,143

101,753

88,381

75,400

Intangible assets

65,911

58,545

59,970

95,012

83,099

70,186

57,273

Tangible fixed assets

332

813

1,090

2,927

1,290

671

444

Investments

17,032

18,807

18,228

25,515

14,675

14,835

14,995

Other

78

0

1,051

2,689

2,689

2,689

2,689

Current Assets

21,703

46,187

46,767

94,174

120,234

138,847

160,773

Trade receivables

2,628

5,334

3,184

11,135

11,135

11,135

11,135

Cash and cash equivalents

13,958

19,432

21,886

40,252

66,312

84,925

106,851

Assets held for sale (property & battery storage projects)

0

12,188

7,363

17,545

17,545

17,545

17,545

Other

5,117

9,233

14,334

25,242

25,242

25,242

25,242

Current liabilities

6,085

24,928

20,852

50,220

44,120

44,120

44,120

Trade and other payables

4,085

15,210

18,780

42,721

36,621

36,621

36,621

Liabilities of disposal group held for sale

2,000

9,718

2,072

7,499

7,499

7,499

7,499

Non-current liabilities

19,231

8,605

8,976

22,560

22,560

17,260

12,360

Long-term borrowings

7,840

5,973

5,749

0

0

0

0

Other creditors

11,391

2,632

3,227

22,560

22,560

17,260

12,360

Net Assets

79,740

90,819

97,278

147,537

155,307

165,848

179,693

Minority interests

527

582

811

1,075

1,325

1,575

1,825

Net assets attributable to ordinary shareholders

79,213

90,237

96,467

146,462

153,982

164,273

177,868

Diluted NAV per share (p)

289.3

288.2

287.4

366.6

385.5

411.2

445.3

ROCE (%)*

20.6

14.6

16.0

34.1

17.7

19.9

22.3

CASH FLOW

Net operating cash flow

905

9,203

15,711

19,975

26,762

29,861

34,113

Acquisitions and deferred consideration

(11,855)

0

(17,887)

(1,736)

(7,100)

(5,300)

(4,900)

Purchase of management contracts

(23,000)

0

0

0

0

0

0

Net sale/(purchase) of investments

(3,906)

(797)

2,025

(1,122)

(800)

0

0

Net proceeds of sale of investment properties

4,685

0

0

0

0

0

0

Net investment in DevCo projects

0

(1,510)

4,406

(8,247)

0

0

0

Net purchase of fixed and intangible assets

(242)

(531)

(736)

(1,045)

(863)

(875)

(888)

Other

(1,768)

53

186

2,514

11,840

40

40

Cash flow from investing activities

(36,086)

(2,785)

(12,006)

(9,636)

3,077

(6,135)

(5,748)

Dividends

0

(795)

(1,351)

(1,881)

(3,780)

(5,112)

(6,438)

Share issuance (net)

25,679

6,487

7,663

20,487

0

0

0

Share warrants issued/exercised

3,841

4,859

182

0

0

0

0

Share-based payments settled

0

(833)

(7,125)

(9,734)

0

0

0

Other financing activities

1,994

(8,795)

(396)

4,904

0

0

0

Cash flow from financing activities

31,514

923

(1,027)

13,776

(3,780)

(5,112)

(6,438)

Increase/(decrease) in net cash

(3,667)

7,341

2,678

24,115

26,060

18,613

21,926

Closing net cash/(debt)

6,118

13,459

16,137

40,252

66,312

84,925

106,851

Source: Company reports, Edison Investment Research. Note: *Return on capital employed (ROCE) = adjusted operating profit + net performance fees + net development gains divided by opening net assets adjusted for share issuance during the year.

Contact details

Revenue by geography

Gresham House
80 Cheapside
London, EC2V 6EE
UK
+44(0) 20 3837 6270
greshamhouse.com

Contact details

Gresham House
80 Cheapside
London, EC2V 6EE
UK
+44(0) 20 3837 6270
greshamhouse.com

Revenue by geography

Management team

Non-executive chairman: Anthony Townsend

Chief executive officer: Anthony Dalwood

Appointed director and chairman in December 2014, Anthony has spent over 50 years working in the City of London. His previous roles included: chairman of the Association of Investment Companies (2001–03), a director of Brit Insurance (1999–2008), managing director of Finsbury Asset Management (1988–1998), and chairman of BMO Smaller Companies and Finsbury Growth & Income Trust. He is a director of Hansa Capital Partners.

Tony led the management buy-in for Gresham House in 2014 and was appointed as CEO in December 2014. He is an experienced investor and adviser to public and private equity businesses. Tony established SVG Investment Managers (a subsidiary of SVG Capital), previously acting as CEO and chairman, and launched Strategic Equity Capital. Previous appointments include CEO of SVG Advisers (formerly Schroder Ventures (London) Limited), a member of the UK Investment Committee of UBS Phillips & Drew Fund Management, a director of Schroders Private Equity Funds and chairman of the Investment Panel and board member of the London Pension Fund Authority. He is also a director of JPEL and Branton Capital, a member of the CFA (UK) and an adviser to St. Edmunds College, Cambridge Endowment Fund.

Chief financial officer: Kevin Acton

Kevin was appointed as finance director in June 2016 and has over 20 years of finance and operational experience in private equity and asset management. Kevin joined the Gresham House from Oaktree Capital Management where he was a senior vice president responsible for finance and operations in the European principal team, covering private equity and debt opportunity funds. Prior to joining Oaktree, Kevin was director, group reporting and valuations for 3i. Kevin qualified as a chartered accountant with Deloitte and is a fellow of the Institute of Chartered Accountants of England and Wales.

Management team

Non-executive chairman: Anthony Townsend

Appointed director and chairman in December 2014, Anthony has spent over 50 years working in the City of London. His previous roles included: chairman of the Association of Investment Companies (2001–03), a director of Brit Insurance (1999–2008), managing director of Finsbury Asset Management (1988–1998), and chairman of BMO Smaller Companies and Finsbury Growth & Income Trust. He is a director of Hansa Capital Partners.

Chief executive officer: Anthony Dalwood

Tony led the management buy-in for Gresham House in 2014 and was appointed as CEO in December 2014. He is an experienced investor and adviser to public and private equity businesses. Tony established SVG Investment Managers (a subsidiary of SVG Capital), previously acting as CEO and chairman, and launched Strategic Equity Capital. Previous appointments include CEO of SVG Advisers (formerly Schroder Ventures (London) Limited), a member of the UK Investment Committee of UBS Phillips & Drew Fund Management, a director of Schroders Private Equity Funds and chairman of the Investment Panel and board member of the London Pension Fund Authority. He is also a director of JPEL and Branton Capital, a member of the CFA (UK) and an adviser to St. Edmunds College, Cambridge Endowment Fund.

Chief financial officer: Kevin Acton

Kevin was appointed as finance director in June 2016 and has over 20 years of finance and operational experience in private equity and asset management. Kevin joined the Gresham House from Oaktree Capital Management where he was a senior vice president responsible for finance and operations in the European principal team, covering private equity and debt opportunity funds. Prior to joining Oaktree, Kevin was director, group reporting and valuations for 3i. Kevin qualified as a chartered accountant with Deloitte and is a fellow of the Institute of Chartered Accountants of England and Wales.

Principal shareholders (as at 31 March 2022)

(%)

Windsor & Maidenhead BC

12.2

Liontrust Asset Management

9.6

Franklin Templeton Fund Management

4.6

Fidelity International

4.3

Aviva Investors

4.1

Amati Global Investors

4.1

Canaccord Genuity Wealth Management

3.7

Hargreaves Lansdown, stockbrokers

3.6

abrdn

3.4

Mr Richard C Dawson

3.4

Board/management/employees

c 10.0


General disclaimer and copyright

This report has been commissioned by Gresham House and prepared and issued by Edison, in consideration of a fee payable by Gresham House. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Gresham House and prepared and issued by Edison, in consideration of a fee payable by Gresham House. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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