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Research: Financials
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
Record |
Core inflows solid but delays in new product line |
Q224 trading update |
Financial services |
26 October 2023 |
Share price performance
Business description
Next events
Analysts
Record is a research client of Edison Investment Research Limited |
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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 |
EPS* |
DPS** |
P/E |
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
|
|
Research: Industrials
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