Lighthouse (LGT) has announced a strategic agreement with Tavistock Investments (TAVI) that will provide it with access to Tavistock’s investment solutions. This will help deliver the broader offering Lighthouse seeks for its in-house asset management arm, Luceo. In conjunction with this agreement, Lighthouse has subscribed £1m to Tavistock’s £1.25m equity fund-raising giving it a 5.3% stake. Our valuation (c 44p) and estimates are unchanged at this stage.
Written by
Lighthouse Group |
Strategic agreement with Tavistock Investments |
Strategic agreement |
Financial services |
15 November 2018 |
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Lighthouse (LGT) has announced a strategic agreement with Tavistock Investments (TAVI) that will provide it with access to Tavistock’s investment solutions. This will help deliver the broader offering Lighthouse seeks for its in-house asset management arm, Luceo. In conjunction with this agreement, Lighthouse has subscribed £1m to Tavistock’s £1.25m equity fund-raising giving it a 5.3% stake. Our valuation (c 44p) and estimates are unchanged at this stage.
Year end |
Revenue (£m) |
PBT |
EPS* |
DPS |
P/E |
Yield |
12/16 |
47.9 |
1.9 |
1.13 |
0.27 |
24.0 |
1.0 |
12/17 |
54.1 |
2.5 |
1.49 |
0.42 |
18.2 |
1.5 |
12/18e |
55.7 |
2.8 |
1.61 |
0.60 |
16.8 |
2.2 |
12/19e |
57.5 |
3.1 |
1.81 |
0.70 |
15.0 |
2.6 |
Note: *EPS are normalised and fully diluted, with tax credits excluded and a standard tax charge applied.
Strategic agreement to broaden product offering
Lighthouse launched Luceo Asset Management in 2016 to offer in-house funds of funds tailored to a range of risk profiles. Octopus acts as investment adviser to the funds. In H118, the AUM of the five funds increased from £37m to £53m, with one fund reaching the break-even level of c £20m. Lighthouse has been considering broadening the fund range further and was introduced to Tavistock recently, leading to the strategic agreement which will be formalised in the coming months. This will give Lighthouse access to Tavistock investment solutions, including in particular two recently launched capital protection funds. These funds are mainly invested in BlackRock iShares, and the guarantee is provided by Morgan Stanley and scales with the value of the fund. Tavistock also has a risk-graded fund range, a model portfolio service and plans to launch an app next year allowing consumers to buy a guaranteed fund provided by a large investment bank. Lighthouse sees a good opportunity here to provide products that meet common customer requirements and help Luceo funds reach a profitable scale.
Subscription to Tavistock fund-raising
In conjunction with the agreement, Lighthouse has subscribed £1m to a £1.25m equity fund-raising by Tavistock (at a 10% discount to the previous day’s closing share price). The issue is designed to facilitate the replacement of an expensive loan with an interest cost of 9% due for repayment in April 2019. The £1m investment in Tavistock deploys part of the c £5m free cash Lighthouse has available and at the same time reduces the potential requirement for seed capital that would arise if Luceo launched new funds itself. Tavistock appears to be at an inflexion point in terms of profitability. At end September it had FUM of £941m (up 26% over a year) and total assets under advice of £3.5bn. Half-year gross revenue was £14m (+14%), EBITDA £0.5m (+227%) and there was a small operating loss. It is also in the process of implementing a £0.5m cost reduction programme and this, together with the increase in FUM, is supportive of the consensus expectation of a sustained move into net profit.
Exhibit 1: Financial summary
Year end 31 December (£000s) |
2015 |
2016 |
2017 |
2018e |
2019e |
Profit and loss |
|||||
National |
16,074 |
15,717 |
19,840 |
21,368 |
23,184 |
Communities |
23,978 |
23,780 |
24,452 |
23,181 |
22,181 |
Wealth Advisory |
8,829 |
8,422 |
9,652 |
10,714 |
11,410 |
Other segments |
0 |
0 |
166 |
409 |
731 |
Total revenue |
48,881 |
47,919 |
54,111 |
55,672 |
57,506 |
Cost of sales |
(34,057) |
(33,452) |
(39,439) |
(40,625) |
(41,551) |
Gross profit |
14,824 |
14,467 |
14,672 |
15,046 |
15,955 |
Underlying expenses |
(13,214) |
(12,180) |
(11,485) |
(11,530) |
(12,146) |
Underlying EBITDA |
1,610 |
2,287 |
3,187 |
3,516 |
3,809 |
Share based payment |
0 |
(79) |
(385) |
(385) |
(385) |
EBITDA |
1,610 |
2,208 |
2,802 |
3,131 |
3,424 |
Depreciation and amortisation |
(552) |
(299) |
(274) |
(352) |
(334) |
Operating profit |
1,058 |
1,909 |
2,528 |
2,779 |
3,091 |
Finance income |
14 |
11 |
3 |
14 |
15 |
Finance costs |
(206) |
(27) |
(10) |
(32) |
0 |
Profit before taxation |
866 |
1,893 |
2,521 |
2,761 |
3,106 |
Taxation |
0 |
750 |
200 |
0 |
(590) |
Non-controlling interest |
0 |
0 |
0 |
0 |
0 |
Earnings |
866 |
2,643 |
2,721 |
2,761 |
2,516 |
Adjusted earnings |
866 |
1,514 |
2,036 |
2,236 |
2,516 |
Basic EPS (p) |
0.68 |
2.07 |
2.13 |
2.16 |
1.97 |
Dil EPS (p) |
0.68 |
1.97 |
1.98 |
1.98 |
1.81 |
Adjusted EPS (p) |
0.68 |
1.19 |
1.59 |
1.75 |
1.97 |
Dil adjusted EPS (p) |
0.68 |
1.13 |
1.49 |
1.61 |
1.81 |
Dividends (p) |
0.24 |
0.27 |
0.42 |
0.60 |
0.70 |
Dividend cover - dil adjusted EPS (x) |
2.8 |
4.2 |
3.5 |
2.7 |
2.6 |
EBITDA margin (%) |
3.3 |
4.6 |
5.2 |
5.6 |
6.0 |
Return on equity - adj earnings (%) |
13.8 |
19.5 |
19.7 |
17.3 |
16.5 |
Balance sheet |
|||||
Non-current assets |
6,555 |
7,220 |
7,478 |
7,594 |
7,610 |
Intangible assets |
5,284 |
5,230 |
5,131 |
5,231 |
5,229 |
Property, plant & equipment |
1,271 |
1,240 |
1,397 |
1,412 |
1,431 |
Available for sale investment |
0 |
0 |
0 |
0 |
0 |
Deferred tax asset |
0 |
750 |
950 |
950 |
950 |
Current assets |
21,655 |
17,505 |
16,920 |
17,601 |
19,579 |
Trade and other receivables |
13,266 |
9,004 |
8,187 |
8,423 |
9,051 |
Cash and cash equivalents |
8,389 |
8,501 |
8,733 |
9,178 |
10,529 |
Total assets |
28,210 |
24,725 |
24,398 |
25,194 |
27,189 |
Current liabilities |
17,254 |
12,307 |
11,635 |
10,150 |
10,148 |
Borrowings |
34 |
34 |
0 |
0 |
0 |
Trade and other payables |
10,629 |
9,268 |
8,789 |
8,450 |
8,448 |
Provisions |
6,591 |
3,005 |
2,846 |
1,700 |
1,700 |
Non-current liabilities |
4,395 |
3,454 |
1,076 |
850 |
750 |
Borrowings |
439 |
405 |
0 |
0 |
0 |
Provisions |
3,956 |
3,049 |
1,076 |
850 |
750 |
Total liabilities |
21,649 |
15,761 |
12,711 |
11,000 |
10,898 |
Net assets |
6,561 |
8,964 |
11,687 |
14,194 |
16,291 |
Cash flow |
|||||
Operating profit |
1,058 |
1,909 |
2,528 |
2,779 |
3,091 |
Depreciation and amortisation |
552 |
299 |
274 |
352 |
334 |
Share-based payments |
0 |
79 |
385 |
385 |
385 |
Change in receivables, payables |
(2,415) |
2,901 |
338 |
(575) |
(629) |
Change in provisions |
2,270 |
(4,493) |
(2,132) |
(1,372) |
(100) |
Finance costs paid |
(404) |
(27) |
(10) |
(32) |
0 |
Income taxes refunded/paid |
0 |
0 |
0 |
0 |
(590) |
Net cash flow from operating activities |
1,061 |
668 |
1,383 |
1,537 |
2,490 |
Purchase of PPE |
(119) |
(126) |
(307) |
(243) |
(200) |
Purchase of intangibles |
(69) |
(88) |
(25) |
(225) |
(150) |
Finance income received |
14 |
11 |
3 |
14 |
15 |
Net cash flow from investing activities |
(174) |
(203) |
(329) |
(454) |
(335) |
Dividends paid |
(255) |
(319) |
(383) |
(638) |
(805) |
Change in loans |
(1,307) |
(34) |
(439) |
0 |
0 |
Net cash flow from financing activities |
(1,562) |
(353) |
(822) |
(638) |
(805) |
Change in cash |
(675) |
112 |
232 |
445 |
1,351 |
Change in loans/other |
1,505 |
34 |
439 |
0 |
0 |
Change in net cash |
830 |
146 |
671 |
445 |
1,351 |
Closing net cash |
7,916 |
8,062 |
8,733 |
9,178 |
10,529 |
Source: Lighthouse Group, Edison Investment Research
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Research: Financials
MyBucks (MBC) continues to expand its lending business organically, leveraging the acquisitions of banks from Opportunity International (in particular those operating in Mozambique and Uganda) completed in H117. At the same time, it introduced several measures to optimise its funding structure and reduce the cost of debt. MBC aims to move towards break-even at net income level through expanding its product offering, entering new regional markets, further technological innovations, as well as continued focus on operating and funding cost reductions.