Strategic agreement with Tavistock Investments

Lighthouse Group 15 November 2018 Update
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Lighthouse Group

Strategic agreement with Tavistock Investments

Strategic agreement

Financial services

15 November 2018

Price

27.10p

Market cap

£35m

Net cash (£m) at end June 2018

9.6

Shares in issue

127.7m

Free float (not in public hands per AIM rule 26)

50%

Code

LGT

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(11.7)

(13.4)

33.8

Rel (local)

(12.0)

(6.3)

41.0

52-week high/low

38.7p

18.3p

Business description

Lighthouse comprises a diverse group of UK financial advice firms serving individuals and businesses. The main focus is on Middle Britain and contracts with 21 affinity groups are an important revenue and profit contributor. Wealth Advisory serves a high net worth client base, while Luceo Asset Management provides an in-house fund offering.

Next events

FY18 trading update

January 2019

Analyst

Andrew Mitchell

+44 (0)20 3681 2500

Lighthouse Group is a research client of Edison Investment Research Limited

Lighthouse (LGT) has announced a strategic agreement with Tavistock Investments (TAVI) that will provide it with access to Tavistock’s investment solutions. This will help deliver the broader offering Lighthouse seeks for its in-house asset management arm, Luceo. In conjunction with this agreement, Lighthouse has subscribed £1m to Tavistock’s £1.25m equity fund-raising giving it a 5.3% stake. Our valuation (c 44p) and estimates are unchanged at this stage.

Year end

Revenue (£m)

PBT
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/16

47.9

1.9

1.13

0.27

24.0

1.0

12/17

54.1

2.5

1.49

0.42

18.2

1.5

12/18e

55.7

2.8

1.61

0.60

16.8

2.2

12/19e

57.5

3.1

1.81

0.70

15.0

2.6

Note: *EPS are normalised and fully diluted, with tax credits excluded and a standard tax charge applied.

Strategic agreement to broaden product offering

Lighthouse launched Luceo Asset Management in 2016 to offer in-house funds of funds tailored to a range of risk profiles. Octopus acts as investment adviser to the funds. In H118, the AUM of the five funds increased from £37m to £53m, with one fund reaching the break-even level of c £20m. Lighthouse has been considering broadening the fund range further and was introduced to Tavistock recently, leading to the strategic agreement which will be formalised in the coming months. This will give Lighthouse access to Tavistock investment solutions, including in particular two recently launched capital protection funds. These funds are mainly invested in BlackRock iShares, and the guarantee is provided by Morgan Stanley and scales with the value of the fund. Tavistock also has a risk-graded fund range, a model portfolio service and plans to launch an app next year allowing consumers to buy a guaranteed fund provided by a large investment bank. Lighthouse sees a good opportunity here to provide products that meet common customer requirements and help Luceo funds reach a profitable scale.

Subscription to Tavistock fund-raising

In conjunction with the agreement, Lighthouse has subscribed £1m to a £1.25m equity fund-raising by Tavistock (at a 10% discount to the previous day’s closing share price). The issue is designed to facilitate the replacement of an expensive loan with an interest cost of 9% due for repayment in April 2019. The £1m investment in Tavistock deploys part of the c £5m free cash Lighthouse has available and at the same time reduces the potential requirement for seed capital that would arise if Luceo launched new funds itself. Tavistock appears to be at an inflexion point in terms of profitability. At end September it had FUM of £941m (up 26% over a year) and total assets under advice of £3.5bn. Half-year gross revenue was £14m (+14%), EBITDA £0.5m (+227%) and there was a small operating loss. It is also in the process of implementing a £0.5m cost reduction programme and this, together with the increase in FUM, is supportive of the consensus expectation of a sustained move into net profit.

Exhibit 1: Financial summary

Year end 31 December (£000s)

2015

2016

2017

2018e

2019e

Profit and loss

National

16,074

15,717

19,840

21,368

23,184

Communities

23,978

23,780

24,452

23,181

22,181

Wealth Advisory

8,829

8,422

9,652

10,714

11,410

Other segments

0

0

166

409

731

Total revenue

48,881

47,919

54,111

55,672

57,506

Cost of sales

(34,057)

(33,452)

(39,439)

(40,625)

(41,551)

Gross profit

14,824

14,467

14,672

15,046

15,955

Underlying expenses

(13,214)

(12,180)

(11,485)

(11,530)

(12,146)

Underlying EBITDA

1,610

2,287

3,187

3,516

3,809

Share based payment

0

(79)

(385)

(385)

(385)

EBITDA

1,610

2,208

2,802

3,131

3,424

Depreciation and amortisation

(552)

(299)

(274)

(352)

(334)

Operating profit

1,058

1,909

2,528

2,779

3,091

Finance income

14

11

3

14

15

Finance costs

(206)

(27)

(10)

(32)

0

Profit before taxation

866

1,893

2,521

2,761

3,106

Taxation

0

750

200

0

(590)

Non-controlling interest

0

0

0

0

0

Earnings

866

2,643

2,721

2,761

2,516

Adjusted earnings

866

1,514

2,036

2,236

2,516

Basic EPS (p)

0.68

2.07

2.13

2.16

1.97

Dil EPS (p)

0.68

1.97

1.98

1.98

1.81

Adjusted EPS (p)

0.68

1.19

1.59

1.75

1.97

Dil adjusted EPS (p)

0.68

1.13

1.49

1.61

1.81

Dividends (p)

0.24

0.27

0.42

0.60

0.70

Dividend cover - dil adjusted EPS (x)

2.8

4.2

3.5

2.7

2.6

EBITDA margin (%)

3.3

4.6

5.2

5.6

6.0

Return on equity - adj earnings (%)

13.8

19.5

19.7

17.3

16.5

Balance sheet

Non-current assets

6,555

7,220

7,478

7,594

7,610

Intangible assets

5,284

5,230

5,131

5,231

5,229

Property, plant & equipment

1,271

1,240

1,397

1,412

1,431

Available for sale investment

0

0

0

0

0

Deferred tax asset

0

750

950

950

950

Current assets

21,655

17,505

16,920

17,601

19,579

Trade and other receivables

13,266

9,004

8,187

8,423

9,051

Cash and cash equivalents

8,389

8,501

8,733

9,178

10,529

Total assets

28,210

24,725

24,398

25,194

27,189

Current liabilities

17,254

12,307

11,635

10,150

10,148

Borrowings

34

34

0

0

0

Trade and other payables

10,629

9,268

8,789

8,450

8,448

Provisions

6,591

3,005

2,846

1,700

1,700

Non-current liabilities

4,395

3,454

1,076

850

750

Borrowings

439

405

0

0

0

Provisions

3,956

3,049

1,076

850

750

Total liabilities

21,649

15,761

12,711

11,000

10,898

Net assets

6,561

8,964

11,687

14,194

16,291

Cash flow

Operating profit

1,058

1,909

2,528

2,779

3,091

Depreciation and amortisation

552

299

274

352

334

Share-based payments

0

79

385

385

385

Change in receivables, payables

(2,415)

2,901

338

(575)

(629)

Change in provisions

2,270

(4,493)

(2,132)

(1,372)

(100)

Finance costs paid

(404)

(27)

(10)

(32)

0

Income taxes refunded/paid

0

0

0

0

(590)

Net cash flow from operating activities

1,061

668

1,383

1,537

2,490

Purchase of PPE

(119)

(126)

(307)

(243)

(200)

Purchase of intangibles

(69)

(88)

(25)

(225)

(150)

Finance income received

14

11

3

14

15

Net cash flow from investing activities

(174)

(203)

(329)

(454)

(335)

Dividends paid

(255)

(319)

(383)

(638)

(805)

Change in loans

(1,307)

(34)

(439)

0

0

Net cash flow from financing activities

(1,562)

(353)

(822)

(638)

(805)

Change in cash

(675)

112

232

445

1,351

Change in loans/other

1,505

34

439

0

0

Change in net cash

830

146

671

445

1,351

Closing net cash

7,916

8,062

8,733

9,178

10,529

Source: Lighthouse Group, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Lighthouse Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Lighthouse Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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