FY25 in line with estimates, with FY26e adjusted

End-FY25 AUM of $100.9bn and performance fees of £3.2m (FY24: £5.8m) had been previously reported. Recurring management fees were 4% lower year-on-year and total revenues were £3.8m or 8% lower at £41.6m. Underlying costs were flat despite continuing investment, and the non-repeat of last year’s exceptional charge moderated the earnings impact of lower revenues, as did a lower tax charge. Adjusted for the non-controlling interest in the loss of the German subsidiary, diluted EPS increased 3% to 4.9p. DPS increased to 4.65p, with Record maintaining a high payout, reflecting strong cash generation, a sound balance sheet and optimism for earnings growth. There is no material change to our FY26 EPS and DPS forecasts, both flat, with growth resuming in FY27 as new products roll out.

New products in the pipeline

Record announced several new initiatives, which comprise a decent pipeline of opportunities for FY26. These include a Sharia-compliant deep-tier supply chain fund, with a target of $1bn, and the $2.2bn Kola Potash transaction expected to start this year. These funds will have the ability to generate management and performance fees, supporting growth once finalised. That said, the timing of the associated revenues on each of the opportunities is not currently known, opening our estimates up to timing risk. In conjunction with the previously announced €1.1bn infrastructure fund, deployed through FY29, the holding period could be 15 years, providing Record with long-term, highly visible recurring fees.

Valuation undemanding, dividend supportive

The shares currently trade on a P/E of c 13.1x FY26e and have a supportive dividend yield of c 7.3%. With such a high yield, we think investors are being well remunerated to wait for the maturation of the current pipeline of new revenue opportunities. We view the current rating as undemanding, given the upside potential from both the new products and Record’s historical product suite.

FY25 results review

Record has posted a strong long-term track record of AUM growth over the past few years, surpassing $100bn for the first time at the end of FY24. We show the AUM development in Exhibit 1 below.

This shows the previously published AUM development, which we reported in our last update note. FY25 saw outflows of $3.2bn, primarily the discontinuation of a tactical interest rate swap portfolio in H1 ($2.3bn in custom solutions) and the wind-down of an FX Alpha mandate towards year-end. Inflows into Hedging for Asset Managers continued to be strong ($3.6bn). Movements in underlying exposures were very small, while FX translation was positive (a stronger Swiss franc vs the US dollar). AUM is presented in US dollars, although almost 80% of the assets are denominated in currencies other than US dollars. Management fees are earned on AUM in the underlying currency assets, with the Swiss franc being the largest component, at 57% of AUM. Given this, there is limited FX impact on revenues reported in pounds sterling. The company has reorganised its AUM reporting to better align with the way management thinks of the business. The three pillars are: 1) risk management; 2) absolute return; and 3) private markets. Below we show Record’s AUM movement split into the three pillars of the business.

AUM drives management fees; performance fee visibility increases within dynamic hedging

Recurring management fees increased across all product areas, with the exception of custom solutions, which showed the impact of some specific client rebalancing in FY24 and early FY25. This, in turn, caused 18% growth in passive hedging driven by the switch from an active custom solutions strategy. Hedging for asset management fees reflected strong AUM growth and should continue to drive positive earnings momentum for the group. Overall, risk management, the largest pillar, experienced fee growth of 9%, while private markets increased by 4%. The total return pillar declined materially because of the aforementioned reallocation of a large client mandate out of custom solutions. Record’s performance fee generation was lower than in FY24 but, importantly, included a recurring contribution from dynamic hedging. Management believes the dynamic hedging performance fees are more structural, have better visibility and are therefore likely to recur. This is largely due to the manner in which the fees are generated, primarily through benchmark outperformance and capturing market inefficiencies. Performance fees generated within the absolute return pillar are more exceptional in nature and were responsible for a large part of total FY24 performance fee generation.

Results were broadly in line

The FY25 results were very close to our forecasts. In brief, although revenues were lower, this was substantially offset by tight control of underlying costs and the non-recurrence of exceptional costs. An issue over the last couple of years has been cost inflation, both from general economic conditions but also from specific IT investment. After the company’s decision to bring in-house the company’s IT infrastructure and development teams, one element that had caused elevated costs has been addressed. Recurring operating expenses of £31.3m were up slightly versus FY24 and Record has guided for only inflationary costs in FY26. This is despite further investments, some dual-running costs from its move to a new office and higher professional fees related to its various new funds and ventures. The tax charge was also much lower because of the recognition of a tax credit relating to the accumulated losses in the German subsidiary and reflecting management’s confidence that the German subsidiary will soon begin to generate profits. The company has increased its FY25 dividend to 4.65p per share, highlighting management’s discipline around capital return. It views balance sheet strength as important to both clients and investors, and it will therefore remain a priority. Record has net assets of £29m and maintains a healthy buffer above its regulatory capital requirement.

Guidance for revenue growth

The company’s expectations for FY26 are to grow the top-line by mid-single digits due to the robust pipeline of opportunities, however, the timing of the revenues is not currently certain. This is reflected in our revised forecasts. For FY26, AUM growth and recurring revenue versus FY25 are slightly lower because of uncertainty around mandate execution timing. We now assume slightly higher performance fees reflecting the sustained positive track record in dynamic hedging. Cost guidance remains at inflation levels, which is positive in our view, and offsets some of the lower revenue. Importantly, the teams for the new initiatives in the pipeline are already in place, meaning future growth should flow through Record’s platform without creating material incremental costs. PAT is slightly above previous estimates, however, the tax rate normalisation and a lower non-controlling interest add-back cause both EPS and DPS to remain flat in FY26. We then forecast earnings to grow in FY27 as new product initiatives come online.