Record — Core inflows solid but delays in new product line

Record (LSE: REC)

Last close As at 19/04/2024

GBP0.64

1.40 (2.25%)

Market capitalisation

GBP127m

More on this equity

Research: Financials

Record — Core inflows solid but delays in new product line

In its Q224 update, Record reported core inflows of US$1.5bn that were more than offset by US$3.4bn of negative market and FX movements. Consequently, Record experienced a 2% net decline in assets under management equivalent (AUME) of US$1.9bn versus Q124. Record also earned performance fees of £1m in Q224 as the group continued to benefit from interest rate differentials. Management stated that the higher-margin asset management product rollout continues to progress, albeit at a slower pace than initially planned. Due to the shift in timing, we have scaled back our FY24 and FY25 PBT forecasts by 9% and 22%, respectively. Record will give further details on its growth initiatives at its H124 results on 17 November.

Written by

Robert Murphy

Managing Director, Financials and Investment Trusts

Record_resized

Financials

Record

Core inflows solid but delays in new product line

Q224 trading update

Financial services

26 October 2023

Price

68p

Market cap

£135m

Net cash and money market instruments (£m) at end March 2023

14.5

Shares in issue

199.1m

Free float

37.5%

Code

REC

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(15.0)

(22.0)

(9.2)

Rel (local)

(11.8)

(18.0)

(12.7)

52-week high/low

98p

65p

Business description

Record is a specialist independent asset, currency and derivatives manger. It provides a number of products and services for institutional clients, including passive and dynamic hedging, and a range of currency for return strategies, including funds and customised segregated accounts.

Next events

H124 results

17 November 2023

Q324 update

26 January 2024

Analysts

Rob Murphy

+44 (0)20 3077 5700

Armando Hoxha

+44 (0)20 3077 5700

Record is a research client of Edison Investment Research Limited

In its Q224 update, Record reported core inflows of US$1.5bn that were more than offset by US$3.4bn of negative market and FX movements. Consequently, Record experienced a 2% net decline in assets under management equivalent (AUME) of US$1.9bn versus Q124. Record also earned performance fees of £1m in Q224 as the group continued to benefit from interest rate differentials. Management stated that the higher-margin asset management product rollout continues to progress, albeit at a slower pace than initially planned. Due to the shift in timing, we have scaled back our FY24 and FY25 PBT forecasts by 9% and 22%, respectively. Record will give further details on its growth initiatives at its H124 results on 17 November.

Year end

Revenue (£m)

PBT
(£m)

EPS*
(p)

DPS**
(p)

P/E
(x)

Yield
(%)

03/22

35.2

10.9

4.37

3.60

15.5

5.3

03/23

44.7

14.6

5.81

4.50

11.7

6.6

03/24e

44.1

13.3

5.14

4.40

13.2

6.5

03/25e

47.0

14.1

5.44

4.60

12.5

6.8

Note: *EPS is diluted. **DPS excludes special dividends.

Solid core inflows negated by market and FX moves

Record reported an AUME of US$84.5bn in Q224, down by 2% q-o-q but up by 5% yo-y. The group had inflows of US$1.5bn in Q224, bringing an end to the two successive quarters of outflows (see Exhibit 1). Inflows were primarily driven by passive hedging, its largest product by AUME, and supplemented by US$0.2bn of inflows into cash and futures products. Currency for return and multi-product, Record’s highest fee earners, both reported outflows of US$0.3bn and US$0.1bn, representing a 7% and 2% share of their Q124 AUME, respectively. Core inflows were offset by US$3.4bn in negative movements related to FX and mandate volatility targeting, and movements in global markets. Hence, the net movement in AUME was negative US$1.9bn.

Estimates lowered on new product timing

Record’s diversification strategy into higher-margin asset management and digital investments is well underway. However, management highlighted that there have been some delays launching the new products. Consequently, we have lowered our PBT guidance by 9% and 22%, to £13.3m and £14.1m for FY24 and FY25, respectively, as we have pushed out most of the revenue contribution to FY25 but not at the same magnitude as previously forecast. Given more persistent inflation in the UK, we have also increased our cost assumptions by 7% and 10% in FY24 and FY25.

Valuation: Trading at a premium compared to peers

Record trades at a premium to its peers. It trades at an FY23 annualised P/E ratio of 11.7x versus a peer average of 10.2x, while on an EV/EBITDA basis, it trades at 9.1x compared to the peer average of 5.0x. Its FY23 dividend yield of 6.6% is below the peer average yield of 9.5%.

Exhibit 1: AUME progression

US$bn

AUME

Net flows

Q423

Q124

Q224

Q123

Q223

Q323

Q423

Q124

Q224

Dynamic hedging

14.7

15.3

14.5

1.5

0.2

1.8

0.7

0.3

0.0

Passive hedging

63.8

61.6

60.5

0.7

6.5

(1.3)

(1.0)

(3.0)

1.7

Currency for return

3.9

4.1

3.9

(0.3)

0

0.3

(0.6)

0.1

(0.3)

Multi-product

5.2

5.3

5.3

0.1

(0.1)

(0.2)

0.8

0.1

(0.1)

Cash and futures

0.1

0.1

0.3

0.0

0.0

0.0

0.0

0.0

0.2

Total

87.7

86.4

84.5

2.0

6.6

0.6

(0.1)

(2.5)

1.5

Other movements

Markets

(3.9)

(0.9)

0.3

0.7

(1.9)

FX and scaling

(3.3)

(2.8)

4.3

1.1

1.2

(1.5)

Total change

(5.2)

2.9

5.2

1.7

(1.3)

(1.9)

Opening AUME

83.1

77.9

80.8

86.0

87.7

86.4

Closing AUME

77.9

80.8

86.0

87.7

86.4

84.5

Source: Record, Edison Investment Research

Estimate changes

Although core flows remain robust, particularly in its largest product by AUME (passive hedging), the delayed introduction of the new products has caused us to reduce our PBT estimates for FY24 and FY25 by 9% and 22%, respectively.

Previously, we anticipated that the new products would begin to earn fees in Q224 but we have now delayed this assumption to Q424. Based on the delay, we have also lowered our inflow assumption into these new products for both Q424 and FY25. We have reduced our fee rate expectations on these products. Fee rates for all other segments have been maintained.

Additionally, prevailing inflation has prompted us to raise our administrative cost estimates by 7% and 10% in FY24 and FY25, respectively.

As a result, milder expectations on flows and overall AUME has led us to drop our revenue estimates by 3% and 9% to £44.1m and £47.0m in FY24 and FY25, respectively. Our revenue assumptions also include an additional £1m and £0.5m of performance fees in FY24 and FY25 as Record continues to benefit from interest rate differentials. We highlight that a higher-for-longer interest rate environment would continue to present opportunities for Record to earn a performance fee. Lower revenue assumptions and higher cost expectations have led our PBT forecasts lower to £13.3m and £14.1m in FY24 and FY25, respectively.

Our DPS assumption has been maintained for FY24. However, we have lowered our DPS forecast for FY25 by 15% to 4.60p per share, reflecting an ordinary payout ratio of 83%, which is in line with management’s 70–90% dividend target payout.

Exhibit 2: Estimate changes

FY24e

FY25e

Old

New

Change

Old

New

Change

Revenue (£m)

45.6

44.1

(3%)

52.0

47.0

(9%)

PBT (£m)

14.7

13.3

(9%)

18.0

14.1

(22%)

EPS* (p)

5.7

5.14

(9%)

6.97

5.44

(22%)

DPS** (p)

4.40

4.40

0%

5.40

4.60

(15%)

Source: Edison Investment Research. Note: *EPS is diluted. **Dividend excludes any special payment.

Exhibit 3: Financial summary

Year end 31 March, £'000s

 

 

2019

2020

2021

2022

2023

2024e

2025e

PROFIT & LOSS

 

 

 

 

 

 

 

 

 

Revenue

 

 

24,973

25,563

25,412

35,152

44,689

44,070

47,041

Operating expenses

 

 

(17,089)

(17,996)

(19,333)

(23,945)

(29,925)

(31,267)

(33,407)

Other income/(expense)

 

 

(8)

82

41

(372)

(293)

(40)

(40)

Operating profit (before amort. and except.)

 

 

7,876

7,649

6,120

10,835

14,471

12,763

13,594

Finance income

 

 

113

88

33

21

127

552

491

Profit before tax

 

 

7,989

7,737

6,153

10,856

14,598

13,315

14,085

Taxation

(1,559)

(1,365)

(802)

(2,225)

(3,259)

(3,329)

(3,521)

Minority interests

 

 

0

48

0

0

0

0

0

Attributable profit

 

 

6,430

6,420

5,351

8,631

11,339

9,986

10,564

Revenue/AUME (excluding perf fees) bp

 

 

4.9

4.9

4.8

5.6

5.6

5.9

6.2

Operating margin (%)

 

 

31.5

29.9

24.1

30.8

32.4

29.0

28.9

Average number of shares outstanding (m)

 

 

198.1

197.1

196.2

197.3

195.3

194.2

194.2

Basic EPS (p)

 

 

3.27

3.26

2.75

4.52

5.95

5.22

5.53

EPS - diluted (p)

 

 

3.25

3.26

2.73

4.37

5.81

5.14

5.44

Dividend per share (p)

 

 

2.30

2.30

2.30

3.60

4.50

4.40

4.60

Special dividend per share (p)

 

 

0.69

0.41

0.45

0.92

0.68

0.80

0.80

Total dividend (p)

 

 

2.99

2.71

2.75

4.52

5.18

5.20

5.40

BALANCE SHEET

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

2,161

4,868

5,153

6,084

7,813

7,918

8,048

Intangible Assets

 

 

288

470

420

562

1,390

1,850

2,310

Tangible Assets

 

 

761

751

683

401

377

352

352

Investments

 

 

1,112

2,472

3,046

3,447

4,901

4,901

4,901

Other

 

 

0

1,175

1,004

1,674

1,145

815

485

Current assets

 

 

31,427

31,149

28,045

27,141

28,924

27,264

26,830

Debtors

 

 

7,562

8,704

8,006

9,883

14,373

14,130

15,353

Cash

 

 

12,966

14,294

6,847

3,345

9,948

8,531

6,873

Money market instruments

 

 

10,735

7,958

12,932

13,913

4,549

4,549

4,549

Other

 

 

164

193

260

0

54

54

54

Current liabilities

 

 

(6,158)

(6,955)

(5,992)

(6,210)

(7,630)

(7,199)

(7,380)

Creditors

 

 

(2,736)

(3,009)

(3,426)

(4,721)

(6,011)

(5,910)

(6,421)

Financial liabilities

 

 

(2,621)

(2,191)

(1,696)

0

0

0

0

Other

 

 

(801)

(1,755)

(870)

(1,489)

(1,619)

(1,289)

(959)

Non-current liabilities

 

 

(29)

(901)

(407)

(1,085)

(816)

(816)

(816)

Net assets

 

 

27,401

28,161

26,799

25,930

28,291

27,168

26,682

Minority interests

 

 

60

132

0

0

0

0

0

Net assets attributable to ordinary shareholders

 

27,341

28,029

26,799

25,930

28,291

27,186

26,682

No of shares at year end

 

 

199.1

199.1

199.1

199.1

199.1

199.1

199.1

NAV per share p

 

 

13.7

14.1

13.5

13.0

14.2

13.6

13.4

CASH FLOW

 

 

 

 

 

 

 

 

 

Operating cash flow

 

 

7,026

6,543

6,798

11,355

12,263

10,296

10,082

Capex

 

 

(72)

(243)

(230)

(75)

(272)

(225)

(250)

Cash flow from other investing activities

 

 

(561)

1,513

(6,210)

(3,392)

7,498

(48)

(109)

Dividends

 

 

(5,517)

(5,888)

(5,290)

(6,512)

(9,095)

(10,610)

(10,550)

Other financing activities

 

 

(613)

(943)

(2,368)

(5,019)

(3,942)

(830)

(830)

Other

 

 

205

346

(147)

141

151

0

0

Net cash flow

 

 

468

1,328

(7,447)

(3,502)

6,603

(1,417)

(1,657)

Opening cash/(net debt)

 

 

12,498

12,966

14,294

6,847

3,345

9,948

8,531

Closing net (debt)/cash

 

 

12,966

14,294

6,847

3,345

9,948

8,531

6,873

Closing net (debt)/cash incl. money market instruments

23,701

22,252

19,779

17,258

14,497

13,080

11,422

AUME ($bn)

 

 

 

 

 

 

 

 

 

Opening

 

 

62.2

57.3

58.6

80.1

83.1

87.7

87.3

Net new money flows

 

 

(4.5)

4.6

9.7

2.4

9.1

1.4

5.0

Market/other

 

 

(0.4)

(3.3)

11.8

0.6

(4.5)

(1.8)

0.9

Closing

 

 

57.3

58.6

80.1

83.1

87.7

87.3

93.2

Source: Record accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Record and prepared and issued by Edison, in consideration of a fee payable by Record. 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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Record and prepared and issued by Edison, in consideration of a fee payable by Record. 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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

More on Record

View All

Latest from the Financials sector

View All Financials content

Research: Industrials

Information Services Corporation — Registering growth

Information Services Corporation (ISC) has a strong track record of proficiently acquiring and innovating registries and related information services to benefit citizens and businesses in Canada and on a global scale. We expect ISC to continue to generate predictable and growing cash flows due to the non-discretionary nature of its core registry services, bolstered by its recent extension of the Master Service Agreement (MSA) with the Saskatchewan government by 20 years to 2053. Our DCF valuation of C$37/share implies 88% upside to the current share price, reflecting the sustainable, cash-generative nature of the company, encompassing a large, steady-growth Registry business and a fast-growing Services division.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free