Gresham House — Good progress in H122

Gresham House (LSE: GHE)

Currency in GBP

Last close As at 02/02/2023

GBP7.55

−2.00 (−0.26%)

Market capitalisation

GBP287m

Research: Financials

Gresham House — Good progress in H122

As a specialist alternative asset manager with a focus on sustainable investment strategies and c 85% of AUM in real assets and private equity, Gresham House is well-positioned to weather current market conditions. The H122 trading update supports this and indicates that it continues to make progress towards its five-year plan (GH25) objectives.

Andrew Mitchell

Written by

Andrew Mitchell

Director, Financials

Financials

Gresham House

Good progress in H122

H122 update

Financial services

14 July 2022

Price

810p

Market cap

£308m

Net cash (£m) at end December 2021

40.3

Shares in issue

38.0m

Free float

90%

Code

GHE

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(9.5)

(18.2)

(12.9)

Rel (local)

(8.5)

(12.4)

(9.9)

52-week high/low

1,005p

765p

Business description

Gresham House is a specialist alternative asset manager focused on sustainable investments with strategies in public and private equity and real assets including forestry, renewable energy, battery storage, housing and sustainable infrastructure. At end June 2022 AUM stood at £7.3bn.

Next events

H122 results (estimate)

15 September 2022

Analyst

Andrew Mitchell

+44 (0)20 3681 2500

Gresham House is a research client of Edison Investment Research Limited

As a specialist alternative asset manager with a focus on sustainable investment strategies and c 85% of AUM in real assets and private equity, Gresham House is well-positioned to weather current market conditions. The H122 trading update supports this and indicates that it continues to make progress towards its five-year plan (GH25) objectives.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/21

70.4

20.2

49.3

10.0

16.4

1.2

12/22e

74.2

25.9

52.1

13.5

15.5

1.7

12/23e

84.4

30.8

58.6

17.0

13.8

2.1

12/24e

95.3

36.8

67.1

24.0

12.1

3.0

Note: *PBT and EPS (diluted) are adjusted, excluding performance fees, realised gains, amortisation and depreciation, exceptional items and share-based payments related to acquisitions.

Strong AUM growth of 11% to £7.3bn

Fund-raising in H122 proved stronger than might be expected given an uncertain market background. Assets under management (AUM) growth was £0.8bn (11%) to £7.3bn. This included organic growth of £0.5bn (+8%) within which £150m was raised for Gresham House Energy Storage Fund (GRID), £65m for Gresham House Residential Secure Income LP (ReSI LP), £70m for Baronsmead and Mobeus VCTs and net inflows of £70m for open-ended equity funds. The acquisition of Burlington Real Estate, an Irish commercial property asset management and development company, was completed in March adding c £0.3bn to AUM. Looking ahead, the group indicates that it has its strongest client pipeline since the launch of GH25 in 2020 and that GRID intends to expand internationally to capture further battery storage investment opportunities.

Profit and margin at least meeting expectations

Gresham House expects to achieve adjusted operating profit and margins at least in line with market expectations for H122 and FY22. Reflecting this we maintain our estimates ahead of the H122 results in September, with adjusted operating profit of £25.9m for FY22e (£20.2m FY21) and an operating margin of 36% (33%). (See our May initiation note for discussion of our estimates.)

Valuation

Our comparison table (see Exhibit 1) shows Gresham House trading between European and North American peer averages on P/E multiples, but noticeably lower in terms of EV/EBITDA. Share price weakness and unchanged DCF model assumptions mean that the current price now implies a discount rate of 20% (previously 17%), underlining the cautious valuation applied by the market, assuming our estimates are met.

Valuation

In the two exhibits below we have updated our peer-comparison table and a summary chart showing implied valuation ranges for Gresham House shares. In the last three months the shares (down 18%) have shown similar weakness to the averages for European and North American peers, and for other UK quoted asset managers (down between 16% and 20%). As Exhibit 1 shows, in terms of P/E multiples, Gresham House continues to trade between the European and North American peer averages (at 15.5x FY22 and 13.8x FY23) but above more conventional UK listed asset managers. Looking at peer EV/EBITDA multiples, Gresham House trades at a markedly lower level (10.3x FY22) than the European/North American peers (but well above the traditional UK asset manager average).

Exhibit 1: Asset management comparators

Price
(p)

Market cap (£m)

P/E 2022e
(x)

P/E 2023e
(x)

Dividend yield (%)

EV/EBITDA 2022e (x)

Gresham House

810

306

15.5

13.8

1.2

10.3

Antin Infrastructure Partners

23

3,457

41.7

23.4

0.3

25.9

Bridgepoint

216

1,779

17.0

12.3

N/A

13.7

EQT

20

16,918

26.2

16.2

1.4

22.2

Foresight

386

418

15.1

12.1

N/A

10.6

Impax Asset Management

567

752

14.3

13.8

3.6

10.5

Intermediate Capital

1,366

3,968

10.8

10.6

5.6

16.9

Partners

75,182

20,014

21.0

18.3

3.8

17.9

Petershill Partners

221

2,536

9.7

8.2

N/A

N/A

Tikehau Capital

1,773

3,098

17.4

12.2

2.9

15.6

Average

19.3

14.1

2.9

16.7

North American peer average*

14.6

12.7

2.1

22.4

UK asset managers average**

10.0

9.9

8.0

5.2

Source: Refinitiv, Edison Investment Research. Note: Priced at 14 July 2022. *Ares, Brookfield, Carlyle, Hamilton Lane, KKR, StepStone. **Ashmore, City of London, Jupiter, Liontrust, Man Group, Polar Capital, Schroders.

Exhibit 2 shows the range of values implied when we put Gresham House shares on peer group multiples for 2022e, those implied by transactions involving comparator companies and finally the range indicated by our discounted cash flow (DCF) model, assuming a 3% long-term growth rate and discount rates between 8% and 17%.

Exhibit 2: Valuation ranges based on peers, transactions and DCF

Source: Edison Investment Research, Refinitiv. Note: Peer multiples for 2022e. The markers show average values and, for the DCF valuation, the value at a discount rate of 10%.

Exhibit 3: Financial summary

December (£'000s unless indicated)

2018

2019

2020

2021

2022e

2023e

2024e

PROFIT & LOSS

Asset management income

13,717

31,427

40,304

62,162

72,669

82,880

93,769

Dividend, interest and other income

781

357

1,632

2,038

1,500

1,500

1,500

Performance fees

0

1,944

0

6,163

0

0

0

Total income

14,498

33,728

41,936

70,363

74,169

84,380

95,269

Administrative overheads

(14,608)

(34,331)

(42,052)

(60,116)

(64,482)

(68,864)

(73,291)

Net operating profit/(loss) before exceptional items

(110)

(603)

(116)

10,247

9,687

15,516

21,978

Finance costs

(42)

(390)

(25)

(311)

(200)

(200)

(200)

Exceptional items

(2,001)

(1,063)

(1,775)

(3,215)

0

0

0

Share of associates’ profits/(losses)

1,718

246

158

4,955

200

200

200

Gains and losses on investments held at fair value

(271)

3,048

4,599

5,842

0

0

0

Movement in fair value of contingent consideration

(209)

(2,065)

(1,163)

(1,659)

0

0

0

Other

40

0

224

461

0

0

0

Operating profit/(loss) before taxation

(875)

(827)

1,902

16,320

9,687

15,516

21,978

Taxation

218

(23)

(1,084)

(4,107)

(1,937)

(3,662)

(5,495)

Discontinued operations and FX movements

11

55

(12)

(172)

0

0

0

Total comprehensive income

(646)

(795)

806

12,041

7,749

11,853

16,484

Non-controlling interest

(53)

(55)

(229)

(264)

(250)

(250)

(250)

Net income attributable to equity holders

(699)

(850)

577

11,777

7,499

11,603

16,234

Adjusted core operating profit

Net core income

14,709

31,724

40,774

61,609

72,124

82,041

92,618

Operating expenses (excl. dep'n and amortisation)

(11,705)

(21,047)

(28,690)

(41,128)

(45,984)

(51,078)

(55,571)

EBITDA (adjusted)

3,004

10,677

12,084

20,481

26,140

30,963

37,047

Finance costs

(42)

(390)

(25)

(311)

(200)

(200)

(200)

Adjusted operating profit/(loss)

2,962

10,287

12,059

20,170

25,940

30,763

36,847

EPS - diluted (p)

(3.9)

(3.2)

1.8

32.6

18.7

28.9

39.4

Adjusted, diluted EPS

14.7

31.2

32.9

49.3

52.1

58.6

67.1

Dividend per share (p)

3.0

4.5

6.0

10.0

13.5

17.0

24.0

BALANCE SHEET

Non-current assets

83,353

78,165

80,339

126,143

101,753

88,381

75,400

Intangible assets

65,911

58,545

59,970

95,012

83,099

70,186

57,273

Tangible fixed assets

332

813

1,090

2,927

1,290

671

444

Investments

17,032

18,807

18,228

25,515

14,675

14,835

14,995

Other

78

0

1,051

2,689

2,689

2,689

2,689

Current Assets

21,703

46,187

46,767

94,174

120,234

138,847

160,773

Trade receivables

2,628

5,334

3,184

11,135

11,135

11,135

11,135

Cash and cash equivalents

13,958

19,432

21,886

40,252

66,312

84,925

106,851

Assets held for sale (property then battery storage projects)

0

12,188

7,363

17,545

17,545

17,545

17,545

Other

5,117

9,233

14,334

25,242

25,242

25,242

25,242

Current liabilities

6,085

24,928

20,852

50,220

44,120

44,120

44,120

Trade and other payables

4,085

15,210

18,780

42,721

36,621

36,621

36,621

Liabilities of disposal group held for sale

2,000

9,718

2,072

7,499

7,499

7,499

7,499

Non-current liabilities

19,231

8,605

8,976

22,560

22,560

17,260

12,360

Long-term borrowings

7,840

5,973

5,749

0

0

0

0

Other creditors

11,391

2,632

3,227

22,560

22,560

17,260

12,360

Net Assets

79,740

90,819

97,278

147,537

155,307

165,848

179,693

Minority interests

527

582

811

1,075

1,325

1,575

1,825

Net assets attributable to ordinary shareholders

79,213

90,237

96,467

146,462

153,982

164,273

177,868

Diluted NAV per share (p)

289.3

288.2

287.4

366.6

385.5

411.2

445.3

ROCE (%)

20.6

14.6

16.0

34.1

17.7

19.9

22.3

CASH FLOW

Net operating cash flow

905

9,203

15,711

19,975

26,762

29,861

34,113

Acquisitions and deferred consideration

(11,855)

0

(17,887)

(1,736)

(7,100)

(5,300)

(4,900)

Purchase of management contracts

(23,000)

0

0

0

0

0

0

Net sale/(purchase) of investments

(3,906)

(797)

2,025

(1,122)

(800)

0

0

Net proceeds of sale of investment properties

4,685

0

0

0

0

0

0

Net investment in DevCo projects

0

(1,510)

4,406

(8,247)

0

0

0

Net purchase of fixed and intangible assets

(242)

(531)

(736)

(1,045)

(863)

(875)

(888)

Other

(1,768)

53

186

2,514

11,840

40

40

Cash flow from investing activities

(36,086)

(2,785)

(12,006)

(9,636)

3,077

(6,135)

(5,748)

Dividends

0

(795)

(1,351)

(1,881)

(3,780)

(5,112)

(6,438)

Share issuance (net)

25,679

6,487

7,663

20,487

0

0

0

Share warrants issued/exercised

3,841

4,859

182

0

0

0

0

Share-based payments settled

0

(833)

(7,125)

(9,734)

0

0

0

Other financing activities

1,994

(8,795)

(396)

4,904

0

0

0

Cash flow from financing activities

31,514

923

(1,027)

13,776

(3,780)

(5,112)

(6,438)

Increase/(decrease) in net cash

(3,667)

7,341

2,678

24,115

26,060

18,613

21,926

Closing net cash/(debt)

6,118

13,459

16,137

40,252

66,312

84,925

106,851

Source: company reports, Edison Investment Research. Note: *Return on capital employed (ROCE) = adjusted operating profit + net performance fees + net development gains divided by opening net assets adjusted for share issuance during the year.

General disclaimer and copyright

This report has been commissioned by Gresham House and prepared and issued by Edison, in consideration of a fee payable by Gresham House. 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 2022 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

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Frankfurt +49 (0)69 78 8076 960

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United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

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United States of America

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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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Gresham House and prepared and issued by Edison, in consideration of a fee payable by Gresham House. 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 2022 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.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1185 Avenue of the Americas

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Research: Healthcare

IRLAB Therapeutics — Phase IIb/III mesdopetam study expanded

IRLAB Therapeutics, alongside partner Ipsen, has announced an expansion of the Phase IIb/III study of mesdopetam in patients with levodopa-induced dyskinesias (LIDs) and Parkinson’s disease (PD). The companies will expand enrolment to 154 patients (from 140) supported by the addition of new sites across the US, Europe and Israel. Management has confirmed that enrolment has progressed through the study period and is expected to complete over the summer, with top-line results expected in Q422. The company also communicated that blinded safety data from the study so far are in alignment with previously reported Phase Ib/IIa results; however, it has not reported any specific details. Considering the disruption the COVID-19 pandemic has caused to patient enrolment in many trials, we see the Phase IIb/III enrolment expansion, along with the safety data announcement, as an encouraging sign for the mesdopetam development programme. We value IRLAB at SEK6.13bn or SEK118.5/share.

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