Last close As at 05/08/2026
GBP0.44
▲ 0.60 (1.37%)
Market capitalisation
GBP89m
Research: Financials
Record’s Q319 trading update showed a 6.5% decline in AUME, reflecting a combination of outflows, market weakness and foreign exchange moves. This leads to a 10% reduction in our FY20e earnings. For the current year the negative effect is more than offset by crystallisation of a further performance fee, which is a reminder of the potential for positive earnings surprises in subsequent periods, where we assume none. Following further price weakness, the valuation appears cautious.
Written by
Record |
Another performance fee to bolster FY19 |
Q319 trading update |
Financial services |
22 January 2019 |
Share price performance
Business description
Next events
Analysts
Record is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||
Record’s Q319 trading update showed a 6.5% decline in AUME, reflecting a combination of outflows, market weakness and foreign exchange moves. This leads to a 10% reduction in our FY20e earnings. For the current year the negative effect is more than offset by crystallisation of a further performance fee, which is a reminder of the potential for positive earnings surprises in subsequent periods, where we assume none. Following further price weakness, the valuation appears cautious.
Year end |
Revenue (£m) |
PBT |
EPS* |
DPS** |
P/E |
Yield |
03/17 |
23.0 |
7.9 |
2.90 |
2.00 |
10.6 |
6.5 |
03/18 |
23.8 |
7.3 |
2.98 |
2.30 |
10.3 |
7.5 |
03/19e |
24.7 |
7.5 |
3.02 |
2.30 |
10.2 |
7.5 |
03/20e |
21.4 |
5.1 |
2.08 |
2.32 |
14.7 |
7.6 |
Note: *EPS are diluted and **DPS excludes special dividends.
Markets trim AUME but performance fee to boost EPS
Record’s Q319 trading update for the period to end December showed assets under management equivalent (AUME) down 6.5% in the quarter to $57.8bn, or 4.2% lower in sterling terms. While below the assumption made in our estimates following H119, this was broadly unsurprising in the context of weakness in equity markets and the previously announced mandate terminations in passive hedging ($2.5bn). In the event, not all the $2.5bn has left yet, but will do shortly and there was a (relatively) small additional outflow of $0.5bn in passive hedging. FX moves and mandate scaling, where volatility targets apply, trimmed a further $0.9bn from the total AUME. Positively, there was an inflow in the currency for return area and another performance fee was earned in the quarter (£1.3m, relating to performance over a six-month period), giving total performance fees of £2.35m for 9M19.
Outlook
The group is still seeing a good level of interest in its services diversified by customer, product and geography. The environment of political and economic uncertainties globally remains conducive to Record’s discussions with potential clients. The performance fee earned in the quarter underlines the point that the enhanced hedging and other mandates capable of earning performance fees have the potential to offset the lower management fees they carry and to counter the competitive pressures that remain a feature of the market. Our EPS estimate for the current year is increased by 12%, reflecting the additional performance fee, and for FY20 the lower AUME starting point results in a 10% reduction (with no performance fees assumed).
Valuation
The shares trade on prospective earnings multiples that are below or just above a comparator group of UK fund managers, while the dividend yield is 7.5% (before the special dividend), which appears cautious for a differentiated and well-capitalised business (capital buffer over the regulatory requirement of c £14m).
Changes in AUME and investment performance
As noted, markets had a negative impact on AUME during Record’s third quarter. Exhibit 1 makes clear that there is particularly a high level of equity market exposure in dynamic hedging. In addition to the hedging products, some multi-product mandates are also linked to equity and other markets. Equity markets were notably weak in the period with the MSCI World index, as an example, down 13.4% in the period.
Exhibit 1: Underlying asset class exposure of dynamic and passive hedging AUME (H119)
% AUME |
Revenue |
||
Dynamic |
Passive |
Est % of total |
|
Equity |
95 |
27 |
46 |
Fixed income |
0 |
41 |
29 |
Other |
5 |
32 |
24 |
100 |
100 |
100 |
Source: Record, Edison Investment Research
Exhibit 2 analyses both AUME level and the net flows by period. Here we can see that market moves had a negative impact of $2bn, equivalent to 3.2% of opening AUME. Foreign exchange and scaling effects in volatility-based mandates had a further 1.5% adverse effect. Turning to flows, there was a $1.3bn outflow in passive hedging, of which $0.8bn related to the $2.5bn mandate terminations announced in the Q219 update. There was an additional outflow of $0.5bn, which at 1% of AUME is within the normal ebb and flow of mandates. The remaining mandates within the $2.5bn are likely to leave shortly. Otherwise, there has been a $0.3bn inflow in currency for return.
Exhibit 2: AUME changes
$bn |
Q318 |
Q418 |
Q119 |
Q219 |
Q319 |
Q119 |
Q219 |
Q319 |
9M19 |
AUME |
Net flows |
||||||||
Dynamic hedging |
4.5 |
4.3 |
4.3 |
4.4 |
3.9 |
0.4 |
0.0 |
0.0 |
0.4 |
Passive hedging |
54.3 |
53.0 |
52 |
51.7 |
48.4 |
(0.4) |
(0.6) |
(1.3) |
(2.3) |
Currency for return |
1.7 |
1.6 |
2.3 |
2.4 |
2.4 |
0.6 |
0.0 |
0.3 |
0.9 |
Multi-product |
3.1 |
3.0 |
3.0 |
3.0 |
2.9 |
0.0 |
0.0 |
0.0 |
0.0 |
Cash and futures |
0.3 |
0.3 |
0.3 |
0.3 |
0.2 |
0.0 |
0.0 |
(0.1) |
(0.1) |
Total |
63.9 |
62.2 |
61.9 |
61.8 |
57.8 |
0.6 |
(0.6) |
(1.1) |
(1.1) |
Markets |
1.2 |
0.1 |
(2.0) |
(0.7) |
|||||
FX and scaling for volatility targeting mandates |
(2.1) |
0.4 |
(0.9) |
(2.6) |
|||||
Total change |
(0.3) |
(0.1) |
(4.0) |
(4.4) |
|||||
Source: Record, Edison Investment Research
Client numbers are virtually unchanged at 65 versus 66 previously, but within this five have left and four have been added. Only two more will leave with the departure of the remaining element of the $2.5bn of terminations.
On investment performance in the currency for return strategies, Record reports a marked turnaround in emerging markets, which generated a positive return of 2.42% in the quarter giving an annualised performance (ungeared) of +1.76% since inception (30 November 2009). The multi-strategy product performance was also positive at +0.77% in the quarter.
Estimate changes
Estimate changes for revenue, pre-tax profit and EPS are shown in Exhibit 3. The key drivers of the changes are the additional performance fee crystallised in Q319 and the new, lower starting base for AUME following the update. There is a small positive sterling/dollar currency translation effect compared with our previous estimates. Other assumptions, in particular fee margins, are unchanged. As noted earlier, we do not assume performance fees will be earned in future periods and only include AUME flows already announced. We do allow for some market growth in the underlying assets for hedging (+2% pa).
Exhibit 3: Estimate changes
|
Revenue (£m) |
PBT (£m) |
EPS (p) |
DPS (p) |
||||||||
|
Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
03/19e |
23.7 |
24.7 |
4% |
6.7 |
7.5 |
12% |
2.69 |
3.02 |
12% |
2.30 |
2.30 |
0% |
03/20e |
22.4 |
21.4 |
-4% |
5.7 |
5.1 |
-10% |
2.31 |
2.08 |
-10% |
2.32 |
2.32 |
0% |
Source: Record, Edison Investment Research. Note: Dividend excludes any special payment.
Valuation
Exhibit 4 shows the recent share performance for Record and the group of UK asset managers that we use for valuation comparison. While Record is differentiated by its currency management specialisation, its fees are generally based on AUME and, as noted above, this means that there is a sensitivity to equity and other markets, as for the asset managers. Most of the asset managers have been affected by weakness in equity markets and pressures on fee margins while the Record share price has been weaker than the average for the asset managers over the periods shown, probably reflecting the neutral then negative AUME flows and negative foreign exchange effects it has experienced.
Exhibit 4: Recent share price performance (%)
One month |
Three months |
One year |
Ytd |
From |
|
Ashmore |
4.3 |
6.9 |
-10.9 |
3.2 |
-14.6 |
City of London Investment Group |
-0.3 |
-1.6 |
-13.7 |
-0.4 |
-17.4 |
Impax Asset Management |
-9.8 |
-25.3 |
-3.2 |
-10.4 |
-34.2 |
Jupiter |
9.9 |
-7.3 |
-44.1 |
7.7 |
-46.3 |
Liontrust |
0.9 |
-9.8 |
1.6 |
-0.5 |
-17.0 |
Man Group |
14.0 |
3.4 |
-31.1 |
10.5 |
-32.9 |
Polar Capital |
3.6 |
-19.5 |
-8.0 |
1.0 |
-35.4 |
Schroders |
10.8 |
-7.2 |
-28.7 |
8.1 |
-30.2 |
Average |
4.2 |
-7.5 |
-17.3 |
2.4 |
-28.5 |
Record |
-1.5 |
-15.1 |
-29.5 |
-4.5 |
-43.6 |
Source: Refinitiv, Edison Investment Research. Priced as at 18.01.19
As shown in Exhibit 5 (the table shows multiples on a calendarised basis), the combination of price weakness and estimate changes leaves Record on below and slightly above average P/E multiples for CY18 and CY19 and on a below average EV/EBITDA (CY19). The yield (before special dividend) is 7.5%. Including last year’s special dividend would give a yield of over 9%.
Exhibit 5: Comparing valuation with UK fund managers
Price |
Market cap (£m) |
P/E 2018e |
P/E 2019e |
EV/EBITDA 2019e (x) |
Dividend yield (%) |
|
Ashmore |
377 |
2,712 |
16.7 |
15.1 |
8.9 |
4.4 |
City of London Investment Group |
379 |
102 |
10.2 |
10.9 |
7.8 |
7.1 |
Impax Asset Management |
185 |
243 |
15.5 |
14.6 |
10.3 |
2.2 |
Jupiter |
318 |
1,455 |
10.1 |
11.7 |
7.2 |
5.4 |
Liontrust |
579 |
295 |
12.9 |
12.3 |
8.5 |
3.6 |
Man Group |
147 |
2,281 |
12.5 |
9.9 |
7.2 |
5.4 |
Polar Capital |
477 |
449 |
10.6 |
10.8 |
6.5 |
5.9 |
Schroders |
2,642 |
7,167 |
12.1 |
12.3 |
10.4 |
4.3 |
Average |
12.6 |
12.2 |
8.3 |
4.8 |
||
Record |
30 |
60 |
10.0 |
12.9 |
7.8 |
7.7 |
Source: Refinitiv, Edison Investment Research. Note: P/Es and EV/EBITDA on a calendar year basis. REC dividend yield excludes special dividend (0.5p) and including this the FY18 dividend was 2.8p. Priced as at 18.01.19
Exhibit 6: Financial summary
Year end 31 March |
£000s |
|
2015 |
2016 |
2017 |
2018 |
2019e |
2020e |
PROFIT & LOSS |
|
|
|
|
|
|
|
|
Revenue (underlying) |
|
|
20,865 |
21,246 |
22,952 |
23,834 |
24,665 |
21,416 |
Revenue |
|
|
21,057 |
21,134 |
22,952 |
23,834 |
24,665 |
21,416 |
Operating expenses |
|
|
(13,521) |
(14,344) |
(15,365) |
(16,735) |
(17,094) |
(16,386) |
Other income/(expense) |
|
|
0 |
0 |
157 |
173 |
(138) |
0 |
Operating Profit (before amort. and except.) |
|
|
7,536 |
6,790 |
7,744 |
7,272 |
7,433 |
5,030 |
Finance income |
|
|
146 |
143 |
112 |
56 |
92 |
91 |
Profit Before Tax |
|
|
7,682 |
6,933 |
7,856 |
7,328 |
7,525 |
5,121 |
Taxation |
(1,708) |
(1,523) |
(1,540) |
(1,182) |
(1,505) |
(973) |
||
Minority interests |
|
|
(192) |
131 |
0 |
0 |
0 |
0 |
Attributable profit |
|
|
5,782 |
5,541 |
6,316 |
6,146 |
6,020 |
4,148 |
Normalised revenue (underlying) |
|
|
20,865 |
21,246 |
22,952 |
23,834 |
24,665 |
21,416 |
Operating expenses (excl. dep'n and amortisation) |
|
|
(13,206) |
(14,023) |
(15,023) |
(16,430) |
(16,809) |
(16,101) |
EBITDA |
|
|
7,659 |
7,223 |
7,929 |
7,404 |
7,856 |
5,315 |
Depreciation and amortisation |
|
|
(315) |
(321) |
(342) |
(305) |
(285) |
(285) |
Other income/(expense) |
|
|
0 |
0 |
157 |
173 |
(138) |
0 |
Normalised Operating profits |
|
|
7,344 |
6,902 |
7,744 |
7,272 |
7,433 |
5,030 |
Finance income |
|
|
146 |
143 |
112 |
56 |
92 |
91 |
Profit Before Tax (norm) |
|
|
7,490 |
7,045 |
7,856 |
7,328 |
7,525 |
5,121 |
Normalised revenue/AuME (excl. perf fees) bps |
|
|
6.2 |
6.0 |
5.2 |
5.1 |
4.8 |
4.7 |
Normalised operating margin (%) |
|
|
35.2 |
32.5 |
33.7 |
30.5 |
30.1 |
23.5 |
Average Number of Shares Outstanding (m) |
|
|
218.4 |
217.9 |
218.0 |
206.5 |
199.1 |
199.1 |
Basic EPS (p) |
|
|
2.66 |
2.55 |
2.91 |
3.03 |
3.07 |
2.11 |
EPS - normalised (p) |
|
|
2.65 |
2.54 |
2.90 |
2.98 |
3.02 |
2.08 |
Dividend per share (p) |
|
|
1.65 |
1.65 |
2.00 |
2.30 |
2.30 |
2.32 |
Special dividend per share (p) |
|
|
0.00 |
0.00 |
0.91 |
0.50 |
0.77 |
0.00 |
Total dividend (p) |
|
|
1.65 |
1.65 |
2.91 |
2.80 |
3.07 |
2.32 |
BALANCE SHEET |
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
3,273 |
423 |
1,228 |
2,339 |
2,212 |
2,217 |
Intangible Assets |
|
|
504 |
299 |
245 |
228 |
363 |
448 |
Tangible Assets |
|
|
129 |
81 |
881 |
910 |
740 |
660 |
Investments |
|
|
2,567 |
0 |
0 |
1,115 |
1,075 |
1,075 |
Deferred tax assets |
|
|
73 |
43 |
102 |
86 |
34 |
34 |
Current Assets |
|
|
37,053 |
40,541 |
44,247 |
29,737 |
31,735 |
29,346 |
Debtors |
|
|
6,324 |
5,695 |
6,972 |
6,775 |
8,036 |
7,174 |
Cash |
|
|
12,010 |
21,720 |
19,120 |
12,498 |
13,717 |
12,190 |
Money market instruments |
|
|
18,100 |
13,020 |
18,102 |
10,198 |
9,804 |
9,804 |
Other |
|
|
619 |
106 |
53 |
266 |
178 |
178 |
Current Liabilities |
|
|
(4,522) |
(3,256) |
(8,644) |
(5,525) |
(7,035) |
(6,633) |
Creditors |
|
|
(2,949) |
(2,372) |
(3,013) |
(2,630) |
(3,749) |
(3,347) |
Financial liabilities |
|
|
0 |
0 |
(4,779) |
(2,467) |
(2,361) |
(2,361) |
Other |
|
|
(1,573) |
(884) |
(852) |
(428) |
(925) |
(925) |
Net Assets |
|
|
35,804 |
37,708 |
36,831 |
26,551 |
26,913 |
24,930 |
Minority interests |
|
|
3,876 |
4,019 |
0 |
0 |
0 |
0 |
Net assets attributable to ordinary shareholders |
|
31,928 |
33,689 |
36,831 |
26,551 |
26,913 |
24,930 |
|
No of shares at year end |
|
|
217.5 |
217.2 |
221.4 |
199.1 |
199.1 |
199.1 |
NAV per share p |
14.7 |
15.5 |
16.6 |
13.3 |
13.5 |
12.5 |
||
CASH FLOW |
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
6,472 |
5,509 |
7,107 |
2,746 |
6,631 |
4,802 |
Capex |
|
|
(128) |
(29) |
(899) |
(236) |
(50) |
(140) |
Cash flow from investing activities |
|
|
0 |
(39) |
(189) |
(82) |
(200) |
(150) |
Dividends |
|
|
(3,266) |
(3,750) |
(3,592) |
(6,810) |
(5,541) |
(6,131) |
Other financing activities |
|
|
(2,571) |
7,737 |
(5,163) |
(2,386) |
106 |
91 |
Other |
|
|
0 |
282 |
136 |
146 |
274 |
0 |
Net Cash Flow |
|
|
507 |
9,710 |
(2,600) |
(6,622) |
1,219 |
(1,528) |
Opening cash/(net debt) |
|
|
11,503 |
12,010 |
21,720 |
19,120 |
12,498 |
13,717 |
Other |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Closing net (debt)/cash |
|
|
12,010 |
21,720 |
19,120 |
12,498 |
13,717 |
12,190 |
Closing net debt/(cash) inc money market instruments |
30,110 |
34,740 |
37,222 |
22,696 |
23,521 |
21,994 |
||
AUME |
|
|
|
|
|
|
|
|
Opening ($bn) |
|
|
51.9 |
55.4 |
52.9 |
58.2 |
62.2 |
60.5 |
Net new money flows |
|
|
2.9 |
(1.4) |
3.1 |
(1.2) |
(2.8) |
0.0 |
Market/other |
|
|
0.6 |
(1.1) |
2.2 |
5.2 |
1.1 |
1.1 |
Closing ($bn) |
|
|
55.4 |
52.9 |
58.2 |
62.2 |
60.5 |
61.6 |
Source: Record accounts, Edison Investment Research
|
|
MOD Resources has raised A$10m through an oversubscribed institutional placing at a price of A$0.30/share (17p/share), a 36% premium to the closing price on 18 January 2019. The company also intends to raise a further A$5m through a fully underwritten rights issue at A$24/share (13p/share). In addition, the company has received an unsolicited, non-binding, indicative all-share offer from Sandfire Resources (SFR:AU) at a price of A$0.38/share (21p/share). The board of MOD believes the Sandfire offer undervalues the company’s assets.