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Currency in GBP
Last close As at 27/03/2023
GBP0.83
▲ −1.80 (−2.12%)
Market capitalisation
GBP169m
Research: Financials
Record reported assets under management equivalent (AUME) at a record level at the end of March reflecting positive market and currency moves in the company’s final quarter. While flows have fluctuated during FY17, the uncertain macro background is contributing to good levels of interest in Record’s currency management products and this should also be supported by a lengthening period of positive performance from the currency for return products.
Record |
Highest AUME yet |
Q417 trading update |
Financial services |
24 April 2017 |
Share price performance
Business description
Next events
Analysts
Record is a research client of Edison Investment Research Limited |
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Record reported assets under management equivalent (AUME) at a record level at the end of March reflecting positive market and currency moves in the company’s final quarter. While flows have fluctuated during FY17, the uncertain macro background is contributing to good levels of interest in Record’s currency management products and this should also be supported by a lengthening period of positive performance from the currency for return products.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/15 |
20.9 |
7.5 |
2.65 |
1.65 |
15.5 |
4.0 |
03/16 |
21.2 |
7.0 |
2.54 |
1.65 |
16.1 |
4.0 |
03/17e |
22.6 |
7.9 |
2.84 |
1.65 |
14.4 |
4.0 |
03/18e |
24.1 |
8.5 |
3.03 |
1.65 |
13.5 |
4.0 |
Note: *PBT and EPS exclude non-controlling interests relating to seed investments. Prospective DPS excludes any special dividends.
Q417 trading update
AUME at the end of March stood at $58.2bn, the highest level yet and 10% ahead of the prior year figure or up 26% in sterling terms. In Q4, net flows were a negative $0.5bn including a $0.9bn reduction in allocation by a client operating a specific variable multi-product mandate. The number of clients was lower in the quarter on the termination of six linked accounts but just ahead for the year at 59. Market and currency movements in the quarter both had a positive impact on AUME, more than offsetting the small net outflow. The currency for return strategies extended their period of positive performance with the longest standing multi-strategy mandate recording a gain of 0.64% and an annualised gain of 1.8% since inception (page 3).
Outlook and estimate changes
The changing macroeconomic and political background over the last year has created a fertile environment for Record to attract new clients and further allocations for its currency management services. The company reports that interest remains strong across a range of countries and products providing a promising background for the current year. We have increased our revenue estimates to reflect the higher than forecast year end AUME while also allowing for the termination of a $1.2bn passive hedging mandate since the year end. As a result our EPS estimates increase by 7% and 2% respectively for FY17 and FY18. Our dividend forecast is unchanged at 1.65p but we note that the board will consider returning excess earnings to shareholders through a special dividend which, we estimate, could take the total dividend to 2.75p, giving a yield of 6.7%.
Valuation
Record trades on an estimated calendar 2016 P/E multiple of just below 15x compared with the average of 14x for its asset manager comparators, but in terms of EV/EBITDA it trades below the peer average and, given its strong capital position and the potential to pay out surplus earnings, there would seem good scope for its rerating to resume following a share price dip following the Q4 update.
Q417 trading update: AUME reaches new high point
The quarterly update to the end of March 2017 showed a further increase in AUME reflecting positive market and exchange rate moves offset by a modest net outflow. Client numbers were down on the quarter but up from the level following a previously announced termination of six related passive mandates. Record reports that there is a good level of interest from potential clients spread across product and geography. Supporting this are both an uncertain macro background and a continuing positive performance in the currency for return strategies.
Exhibit 1: AUME changes
Year to end March |
Q416 |
Q217 |
Q317 |
Q417 |
Q317 |
Q417 |
$bn |
AUME |
AUME |
AUME |
AUME |
Net flows |
Net flows |
Dynamic hedging |
6.1 |
5.7 |
6.1 |
6.3 |
0.5 |
0.1 |
Passive hedging |
43.4 |
45.6 |
46.3 |
48.2 |
1.3 |
0.3 |
Currency for return |
0.6 |
0.9 |
1.0 |
1.0 |
0.0 |
0.0 |
Multi-product |
2.6 |
2.6 |
3.0 |
2.5 |
0.4 |
(0.9) |
Cash |
0.2 |
0.2 |
0.2 |
0.2 |
0.0 |
0.0 |
Total |
52.9 |
55.0 |
56.6 |
58.2 |
2.2 |
(0.5) |
Markets |
1.8 |
1.4 |
||||
FX effects |
(2.4) |
0.7 |
||||
Total change |
1.6 |
1.6 |
Source: Record company data
Looking at the release more closely:
■
AUME at the period end was at a record level of $58.2bn, an increase of 3% from end December 2016 or 10% from the March 2016 year end (in sterling terms the increases were 2% and 26%, respectively). See Exhibit 1 for details of the evolution of AUME. A client has notified the termination of a $1.2bn passive hedging mandate which is expected to take place in the current quarter (Q118).
■
Net flow in Q417 was a net negative $0.5bn. Within this overall movement there was a $0.3bn inflow in the passive hedging category despite a $0.6bn outflow from six connected clients which had been flagged at the time of the last update. The gain reflected a new client win of $0.2bn and additional allocations from existing clients ($0.7bn). The $0.9bn outflow in the multi-product area arose when one client reduced its allocation: a demonstration of the variable nature of this bespoke mandate. In the prior quarter there had been an inflow of $0.4bn in this area.
■
The number of clients at the end of the quarter was 59 compared with 64 at the beginning of the period or 58, allowing for the departure of the six linked clients mentioned above. As we have noted previously, there is a degree of judgement in defining a separate client (Record counts separate legal entities), so the client count is only a qualified indicator for the business. Nevertheless, the number of clients has increased by over a third since the end of FY13 when there were 44.
■
On Q417 performance, Record notes that US dynamic hedging programmes performed as intended while the UK programmes were affected by volatility and the resulting cash costs associated with changing hedging levels. Encouragingly, performance in the currency for return strategies shown in Exhibit 2 remained positive in the quarter extending the track record for the products. Within the multi-product category positive performances from FRB10 and emerging market strategies more than offset weakness in momentum and value. No performance fees were earned in Q417 or FY17.
■
There has been no significant change in fee rates in the quarter and we assume 13bp for dynamic hedging, 17bp for currency for return, 20bp for multi-product and 4bp for passive mandates.
Exhibit 2: Currency for return products – performance data
Year to end March 2017 |
Q1 |
Q2 |
Q3 |
Q4 |
Annualised since inception |
Inception |
FTSE FRB10 Currency Index |
+0.78 |
+1.37 |
+1.96 |
+0.27 |
||
Emerging market product (ungeared) |
+0.63 |
+2.51 |
+4.02 |
+2.85 |
+2.22 |
30/11/2009 |
Multi-strategy product (ungeared) |
+1.48 |
+1.03 |
+1.11 |
+0.64 |
+1.82* |
31/07/2012 |
Source: Record company data. Note: *Annualised performance since inception for the longest standing multi-strategy mandate.
The next two exhibits show the percentage split between product categories by AUME, as reported, and for fee income (our estimate is based on Q417 AUME and indicated average fee rates for each area). The AUME split has barely changed over the year and the fee income analysis highlights that, even with the relatively low fee rates applied to passive hedging, the two hedging strategies account for 80% of fee income.
|
Exhibit 3: AUME analysis |
Exhibit 4: Estimated fee income analysis |
|
|
|
Source: Record, Edison Investment Research |
Source: Edison Investment Research |
|
Exhibit 3: AUME analysis |
|
|
Source: Record, Edison Investment Research |
|
Exhibit 4: Estimated fee income analysis |
|
|
Source: Edison Investment Research |
In terms of outlook, Record continues to highlight macroeconomic and political factors as drivers of recent and potential volatility. This creates a favourable background for potential client interest in Record’s services. This interest is diversified by geography and product type although management indicates the environment is somewhat less favourable in the UK reflecting recent negative returns on hedging.
Estimate changes
We have updated our estimates with changes primarily related to the increase in AUME during Q417 and allowing for the termination of the $1.2bn passive hedging contract in Q118. Otherwise we have made adjustments for exchange rate movements and allowed slightly higher costs in FY18 to reflect costs associated with managing the effect of regulatory requirements in different territories for clients. As a result our profit and EPS estimates increase by 7% and 2% for FY17 and FY18 respectively (Exhibit 5).
Exhibit 5: Estimate changes
|
Revenue* (£m) |
% chg. |
PBT* (£m) |
% chg. |
EPS (p) |
% chg. |
DPS (p) |
% chg. |
||||
|
Old |
New |
|
Old |
New |
|
Old |
New |
|
Old |
New |
|
03/17e |
21.9 |
22.6 |
4% |
7.4 |
7.9 |
7% |
2.64 |
2.84 |
7% |
1.65 |
1.65 |
0% |
03/18e |
23.5 |
24.1 |
3% |
8.4 |
8.5 |
2% |
2.97 |
3.03 |
2% |
1.65 |
1.65 |
0% |
Source: Edison Investment Research. Note: *normalised.
Valuation
We have updated our valuation comparison with UK asset managers in Exhibit 6 while noting that Record is differentiated by its focus on foreign currency and hedging strategies. The level of AUME is linked to stock and other market levels (this applies to almost all hedging programmes and some of the multi-product and currency for return products), while fees are related to the level of AUME, as for asset managers with AUM.
Record is trading at modestly above the average calendar 2016 P/E ratio (at nearly 15x versus a range between c 10x and c 18x) and below the average EV/EBITDA ratio at below 8x. The shares have shown some weakness since the trading update but even so are up approximately 45% on a six month view. Given the strength of the capital position, with £28.8m of cash and marketable securities and shareholders’ funds of £35m at the half year end the board may feel it appropriate to return excess earnings to shareholders. On our revised earnings estimate this could mean a special dividend of 1.1p taking the yield from 4% to c 6.7% at a price of 41p.
Exhibit 6: Earnings and EBITDA multiples for UK fund managers
Price |
Market capitalisation (£m) |
P/E ratio* |
EV/EBITDA |
|
Aberdeen Asset Management |
276.8 |
3,648 |
13.2 |
9.0 |
Ashmore |
347.0 |
2,473 |
16.6 |
10.7 |
City of London Inv Group |
368.5 |
99 |
10.3 |
8.0 |
Henderson |
228.9 |
2,591 |
13.8 |
10.2 |
Impax Asset Management |
90.8 |
116 |
18.3 |
13.6 |
Jupiter |
456.3 |
2,088 |
14.0 |
9.3 |
Liontrust |
425.0 |
211 |
12.6 |
9.3 |
Man Group |
149.2 |
2,483 |
9.8 |
6.7 |
Polar Capital |
381.3 |
349 |
16.2 |
11.3 |
Schroders |
3,069.0 |
8,190 |
15.6 |
8.4 |
Average |
14.0 |
9.7 |
||
Record |
41.0 |
91 |
14.9 |
7.9 |
Source: Bloomberg, Edison Investment Research. Note: *Using calendar 2016 actual/estimated earnings. Priced as at 21 April 2017.
Exhibit 7: Financial summary
Year to March |
£'000s |
|
2015 |
2016 |
2017e |
2018e |
|
|
IFRS |
IFRS |
IFRS |
IFRS |
|
PROFIT & LOSS |
|
|
|
|
|
|
Revenue |
|
|
21,057 |
21,134 |
22,641 |
24,107 |
Operating expenses |
|
|
(13,521) |
(14,344) |
(14,863) |
(15,722) |
Operating Profit (before amort. and except.) |
|
|
7,536 |
6,790 |
7,778 |
8,386 |
Finance income |
|
|
146 |
143 |
142 |
146 |
Profit Before Tax |
|
|
7,682 |
6,933 |
7,920 |
8,532 |
Taxation |
(1,708) |
(1,523) |
(1,663) |
(1,792) |
||
Minority interests |
|
|
(192) |
131 |
0 |
0 |
Attributable profit |
|
|
5,782 |
5,541 |
6,257 |
6,740 |
|
|
|
|
|
|
|
Normalised revenue (underlying) |
|
|
20,865 |
21,246 |
22,641 |
24,107 |
Operating expenses (excl. dep'n and amortisation) |
|
|
(13,206) |
(14,023) |
(14,542) |
(15,401) |
EBITDA |
|
|
7,659 |
7,223 |
8,099 |
8,707 |
Depreciation and amortisation |
|
|
(315) |
(321) |
(321) |
(321) |
Normalised Operating profits |
|
|
7,344 |
6,902 |
7,778 |
8,386 |
Finance income |
|
|
146 |
143 |
142 |
146 |
Profit Before Tax (norm) |
|
|
7,490 |
7,045 |
7,920 |
8,532 |
|
|
|
|
|
|
|
Normalised revenue/AUME (excl. perf fees) bp |
|
|
6.0 |
4.7 |
4.3 |
5.3 |
Normalised Operating Margin (%) |
|
|
35.2 |
32.5 |
34.4 |
34.8 |
|
|
|
|
|
|
|
Average Diluted Shares Outstanding (m) |
|
|
218.4 |
217.9 |
220.3 |
222.4 |
Basic EPS (p) |
|
|
2.66 |
2.55 |
2.85 |
3.04 |
EPS - normalised fully diluted (p) |
|
|
2.65 |
2.54 |
2.84 |
3.03 |
Dividend per share - proposed (p) |
|
|
1.65 |
1.65 |
1.65 |
1.65 |
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
Fixed Assets |
|
|
3,273 |
423 |
332 |
241 |
Intangible Assets |
|
|
504 |
299 |
155 |
11 |
Tangible Assets |
|
|
129 |
81 |
134 |
187 |
Investments |
|
|
2,567 |
0 |
0 |
0 |
Deferred tax assets |
|
|
73 |
43 |
43 |
43 |
Current Assets |
|
|
37,053 |
40,541 |
43,477 |
46,819 |
Debtors |
|
|
6,324 |
5,695 |
6,069 |
6,462 |
Cash |
|
|
12,010 |
21,720 |
24,282 |
27,231 |
Money market instruments |
|
|
18,100 |
13,020 |
13,020 |
13,020 |
Other |
|
|
619 |
106 |
106 |
106 |
Current Liabilities |
|
|
(4,522) |
(3,256) |
(3,428) |
(3,591) |
Creditors |
|
|
(2,949) |
(2,372) |
(2,528) |
(2,691) |
Other |
|
|
(1,573) |
(884) |
(900) |
(900) |
Net Assets |
|
|
35,804 |
37,708 |
40,381 |
43,468 |
Minority interests |
|
|
3,876 |
4,019 |
4,019 |
4,019 |
Net assets attributable to ordinary shareholders |
|
31,928 |
33,689 |
36,362 |
39,449 |
|
No of shares at year end |
|
|
217.5 |
217.2 |
221.4 |
221.4 |
NAV per share p |
14.7 |
15.5 |
16.4 |
17.8 |
||
CASH FLOW |
|
|
|
|
|
|
Operating Cash Flow |
|
|
6,472 |
5,791 |
6,234 |
6,686 |
Capex |
|
|
(128) |
(29) |
(130) |
(130) |
Cash flow from investing activities |
|
|
0 |
(39) |
(100) |
(100) |
Dividends |
|
|
(3,266) |
(3,750) |
(3,583) |
(3,653) |
Other financing activities |
|
|
(2,571) |
7,737 |
142 |
146 |
Other |
|
|
0 |
0 |
0 |
0 |
Net Cash Flow |
|
|
507 |
9,710 |
2,562 |
2,949 |
Opening cash/(net debt) |
|
|
11,503 |
12,010 |
21,720 |
24,282 |
Other |
|
|
0 |
0 |
0 |
0 |
Closing net (debt)/cash |
|
|
12,010 |
21,720 |
24,282 |
27,231 |
Closing net debt/(cash) inc money market instruments |
30,110 |
34,740 |
37,302 |
40,251 |
||
|
|
|
|
|
|
|
Closing ($bn) |
|
|
55.4* |
52.9 |
58.2 |
57.0 |
Source: Record accounts, Edison Investment Research. Note: *2015 AUME on previous disclosure basis.
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|
Research: TMT
Encouraging progress looks to have continued in Q1 with WANdisco (WAND) securing a $4.1m deal with a multinational financial institution and with the business operating at cash flow break-even. The launch of Fusion V2.10 is significant in that it expands WANdisco’s replication to cover mainstream file storage, enlarges the company’s addressable market and strengthens the proposition General Purpose Replication Platform.
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