Record — Strong inflows in FY23

Record (LSE: REC)

Last close As at 18/05/2024

GBP0.68

2.60 (4.00%)

Market capitalisation

GBP135m

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Research: Financials

Record — Strong inflows in FY23

In FY23, Record’s assets under management equivalent (AUME) increased by 5.5% to $87.7bn (FY22: $83.1bn). Full year inflows were strong at $9.1bn (FY22: $2.4bn), or 11% of opening AUME, although marginal outflows of $0.1bn were recorded in Q423. In its trading statement, management points to its expectation of continued growth in FY24 in a more normalised FX volatility environment and in delivering new and higher-margin revenue streams through product development.

Written by

Robert Murphy

Managing Director, Financials and Investment Trusts

Record_resized

Financials

Record

Strong inflows in FY23

Q423 trading update

Financial services

4 May 2023

Price

89p

Market cap

£177m

Net cash and money market instruments (£m), at end-September 2022

17.7

Shares in issue

199.1m

Free float

38.4%

Code

REC

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.5

(7.9)

25.4

Rel (local)

6.8

(5.8)

23.7

52-week high/low

98p

61p

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

FY23 results

30 June 2023

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 FY23, Record’s assets under management equivalent (AUME) increased by 5.5% to $87.7bn (FY22: $83.1bn). Full year inflows were strong at $9.1bn (FY22: $2.4bn), or 11% of opening AUME, although marginal outflows of $0.1bn were recorded in Q423. In its trading statement, management points to its expectation of continued growth in FY24 in a more normalised FX volatility environment and in delivering new and higher-margin revenue streams through product development.

Year
end

Revenue
(£m)

PBT
(£m)

EPS*
(p)

DPS**
(p)

P/E
(x)

Yield
(%)

03/21

25.4

6.2

2.73

2.30

32.6

2.6

03/22

35.2

10.9

4.37

3.60

20.3

4.0

03/23e

44.8

14.8

6.10

4.10

14.6

4.6

03/24e

45.5

15.0

5.72

4.20

15.6

4.7

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

Strong inflows softened by market and FX moves

In its Q423 trading update, Record reported year-end (March) AUME of $87.7bn, up 5.5% from end March 2022. The net $9.1bn inflow was partly offset by a negative $4.5bn impact from market moves and foreign exchange movements and scaling in mandates with a volatility target. This brought the total change in AUME to $4.6bn. We note that Record’s high fee earning multi-product business swung into net inflows in Q4 ($0.8bn) after two consecutive quarters of net outflows. Record earned no performance fees in Q4, but for the whole year they amounted to £5.8m (£0.5m), a 10.6x increase.

Background and outlook

Record has continued to show promising growth, arguably benefiting from more turbulent market conditions. A rising interest rate environment continues to encourage volatility in the FX markets, and after several years of below-normal volatility, management remains confident that it will continue to experience growing demand for currency management products. This will be supported by the introduction of new and higher-margin revenue streams as the group continues to develop its asset management products. Record continues to invest in its proprietary technology, which is helping it onboard asset managers that it previously would not have been able to accommodate. Record retains its target of £60m in revenues by FY25, and management remains confident in its growth strategy to achieve this.

Valuation: Estimates adjusted for AUME and costs

Following the trading statement, we have adjusted our figures for the AUME, and have incorporated modest related changes in costs. This results in our revised forecasts for PBT and EPS, which we trim by 4% in FY23, and by 6% for FY24. The shares trade on prospective P/E multiples of 14.6x for FY23 and 15.6x for FY24. Excluding a special dividend, the dividend yield is 4.6% for FY23.

Changes in AUME

Exhibit 1 illustrates the progression of net flows on a quarterly basis, since the start of the financial year (March year-end), and the changes in AUME over relevant quarters.

Looking at fourth quarter net flows, we observe a second quarter of outflows in passive hedging and Q423 outflows in currency for return. In contrast, there were positive inflows for dynamic hedging and multi-product, Record’s higher fee segments. Overall, a modest net outflow of $0.1bn was recorded for the quarter.

In FY23 as a whole, Record experienced net positive flows across the board, apart from the currency for return product, where there was an outflow of $0.6bn. The most significant increases on a year-on-year basis were in dynamic hedging and passive hedging, which combined accounted for $9.1bn. There was also a notable Q4 and full year swing to the positive in multi-product (Record’s highest fee earner). Total net inflow for the year, before other movements, was $9.1bn (FY22: $2.4bn). In H223, the group experienced positive flows in market movements and foreign exchange and scaling for mandate volatility targeting; however, this was not sufficient to offset the negative movements in H123. As a result, the net total change in AUME for the year was $4.6bn.

Exhibit 1: AUME progression Q423 and FY23

$bn

AUME

Net flows and other moves

Total flows

Total flows

Year end March

Q422

Q323

Q423

Q123

Q223

Q323

Q423

FY22

FY23e

Dynamic hedging

10.6

13.4

14.7 

1.5

0.2

1.8

0.7 

1.4

4.2

Passive hedging

62.8

63.4

63.8 

0.7

6.5

(1.3)

(1.0) 

1.1

4.9

Currency for return

5

4.7

3.9 

(0.3)

0.0

0.3

(0.6) 

0.4

(0.6)

Multi-product

4.5

4.3

5.2 

0.1

(0.1)

(0.2)

0.8 

(0.5)

0.6

Cash and futures

0.2

0.2

0.1 

0.0

0.0

0.0

0.0 

0.0

0.0

Total

83.1

86.0

87.7

2.0

6.6

0.6

(0.1)

2.4

9.1

Other movements:

Markets

(3.9)

(0.9)

0.3

0.7 

0.3

(3.8)

FX and scaling for mandate volatility targeting

(3.3)

(2.8)

4.3

1.1 

0.3

(0.7)

Total change

(5.2)

2.9

5.2

1.7

3.0

4.6

Source: Record, Edison Investment Research

Estimate changes

AUME of $87.7bn came in marginally ahead of our estimate ($87.3bn). Full year accounts will be published at end June 2023. At this point we make only slight changes in our forecasts to accommodate exchange rate movements and marginal impacts of inflation (modestly increasing FY23 costs) by nudging down FY23 and FY24 revenues by 1% and 4%, respectively, PBT by 4% and 6% and EPS by 4% and 6% (see Exhibit 2). We highlight that in FY23 Record earned an above-average £5.8m in performance fees, which elevated PBT and will have provided a tailwind to bottom-line profit. For FY24, we forecast a more normal £1.5m in performance fees, but we still see PBT growing slightly in FY24 as the group continues to grow AUME and build out new revenue streams.

We continue to estimate a core FY23 dividend of 4.1p, to which we add a special dividend per share of 2.2p. Based on our FY23 estimates, at the current share price, the core yield is 4.6% (7.1% including the special dividend).

Exhibit 2: Estimate changes

FY23e

FY24e

Old

New

Change

Old

New

Change

Revenue (£m)

45.4

44.8

-1%

47.2

45.5

-4%

PBT (£m)

15.5

14.8

-4%

16.0

15.0

-6%

EPS* (p)

6.4

6.1

-4%

6.1

5.7

-6%

DPS** (p)

4.1

4.1

0%

4.2

4.2

0%

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

Valuation comparison

Exhibit 3 shows an updated version of our comparative valuation table, with a selection of quoted UK fund managers. Record trades at a premium to the 2023e price-to-earnings (P/E) ratio and 2022 EV/EBITDA calendarised multiples. Should Record achieve its FY25 growth target of £60m in revenues, the current P/E multiple would be 9.5x. Based on current prices, Record’s core dividend yield is 4.6% for FY23 (7.1% including the special dividend).

Exhibit 3: Comparing Record’s valuation with UK fund managers

Price
(p)

Market cap
(£m)

P/E 2023e
(x)

EV/EBITDA 2022 (x)

Dividend yield (%)

Ashmore

240

1,694

16.2

8.8

7.1

City of London Investment Group

436

219

N/A

N/A

7.6

Impax Asset Management

794

1,044

17.5

13.6

3.5

Jupiter

128

693

10.5

3.5

6.6

Liontrust

866

558

9.0

5.0

8.3

Man Group

214

3,228

8.0

8.3

5.8

Polar Capital

477

476

11.6

2.9

9.7

Schroders

472

7,548

13.2

11.3

4.5

Average

12.3

7.6

6.6

Record

89

177

15.3

10.6

4.6

Source: Refinitiv, Edison Investment Research. Note: P/E and EV/EBITDA are on a calendar-year basis. Record’s (FY23) dividend yield excludes the special dividend. Priced at 4 May 2023.

Exhibit 4: Financial summary

Year end 31 March (£'000s)

 

 

2019

2020

2021

2022

2023e

2024e

PROFIT & LOSS

 

 

 

 

 

 

 

 

Revenue

 

 

24,973

25,563

25,412

35,152

44,778

45,529

Operating expenses

 

 

(17,089)

(17,996)

(19,333)

(23,945)

(30,074)

(30.873)

Other income/(expense)

 

 

(8)

82

41

(372)

(40)

(40)

Operating profit (before amort. and except.)

 

 

7,876

7,649

6,120

10,835

14,664

14,616

Finance income

 

 

113

88

33

21

128

362

Profit before tax

 

 

7,989

7,737

6,153

10,856

14,792

14,978

Taxation

(1,559)

(1,365)

(802)

(2,225)

(2,810)

(3,745)

Minority interests

 

 

0

48

0

0

0

0

Attributable profit

 

 

6,430

6,420

5,351

8,631

11,981

11,234

Revenue/AUME (excl. perf fees) bps

 

 

4.9

4.9

4.8

5.6

5.6

6.0

Operating margin (%)

 

 

31.5

29.9

24.1

30.8

32.7

32.1

Average number of shares outstanding (m)

 

 

198.1

197.1

196.2

197.3

196.4

196.4

Basic EPS (p)

 

 

3.27

3.26

2.75

4.52

6.31

5.92

EPS - diluted (p)

 

 

3.25

3.26

2.73

4.37

6.10

5.72

Dividend per share (p)

 

 

2.30

2.30

2.30

3.60

4.10

4.20

Special dividend per share (p)

 

 

0.69

0.41

0.45

0.92

2.20

1.70

Total dividend (p)

 

 

2.99

2.71

2.75

4.52

6.30

5.90

BALANCE SHEET

 

 

 

 

 

 

 

 

Non-current assets

 

 

2,161

4,868

5,153

6,084

6,318

6,028

Intangible Assets

 

 

288

470

420

562

1,211

1,561

Tangible Assets

 

 

761

751

683

401

345

165

Investments

 

 

1,112

2,472

3,046

3,447

3,606

3,606

Other

 

 

0

1,175

1,004

1,674

1,156

696

Current assets

 

 

31,427

31,149

28,045

27,141

31,398

29,549

Debtors

 

 

7,562

8,704

8,006

9,883

12,572

13,076

Cash

 

 

12,966

14,294

6,847

3,345

18,815

16,462

Money market instruments

 

 

10,735

7,958

12,932

13,913

0

0

Other

 

 

164

193

260

0

11

11

Current liabilities

 

 

(6,158)

(6,955)

(5,992)

(6,210)

(7,359)

(7,127)

Creditors

 

 

(2,736)

(3,009)

(3,426)

(4,721)

(5,667)

(5,905)

Financial liabilities

 

 

(2,621)

(2,191)

(1,696)

0

0

0

Other

 

 

(801)

(1,755)

(870)

(1,489)

(1,682)

(1,222)

Non-current liabilities

 

 

(29)

(901)

(407)

(1,085)

(960)

(960)

Net assets

 

 

27,401

28,161

26,799

25,930

29,397

27,491

Minority interests

 

 

60

132

0

0

0

0

Net assets attributable to ordinary shareholders

 

27,341

28,029

26,799

25,930

29,397

27,491

No of shares at year end

 

 

199.1

199.1

199.1

199.1

199.1

199.1

NAV per share (p)

 

 

13.7

14.1

13.5

13.0

14.8

13.8

CASH FLOW

 

 

 

 

 

 

 

 

Operating cash flow

 

 

7,026

6,543

6,798

11,355

11,778

11,555

Capex

 

 

(72)

(243)

(230)

(75)

(300)

(170)

Cash flow from other investing activities

 

 

(561)

1,513

(6,210)

(3,392)

13,739

(138)

Dividends

 

 

(5,517)

(5,888)

(5,290)

(6,512)

(9,250)

(12,640)

Other financing activities

 

 

(613)

(943)

(2,368)

(5,019)

(688)

(960)

Other

 

 

205

346

(147)

141

190

0

Net cash flow

 

 

468

1,328

(7,447)

(3,502)

15,470

(2,353)

Opening cash/(net debt)

 

 

12,498

12,966

14,294

6,847

3,345

18,815

Closing net (debt)/cash

 

 

12,966

14,294

6,847

3,345

18,815

16,462

Closing net (debt)/cash inc money market instruments

23,701

22,252

19,779

17,258

18,815

16,462

AUME ($bn)

 

 

 

 

 

 

 

 

Opening

 

 

62.2

57.3

58.6

80.1

83.1

87.7

Net new money flows

 

 

(4.5)

4.6

9.7

2.4

10.3

3.9

Market/other

 

 

(0.4)

(3.3)

11.8

0.6

(6.1)

0.9

Closing

 

 

57.3

58.6

80.1

83.1

87.7

92.6

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).

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New Zealand

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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.

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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

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Research: Healthcare

Shield Therapeutics — FY23 a key year for business traction

Shield Therapeutics reported its FY22 preliminary results and Q123 business update, the key emphasis of which was the growing traction of Accrufer in the US following the December 2022 co-commercialisation deal with Viatris. The FY22 revenue of £4.5m (+194% y-o-y) was driven by Accrufer US sales (£2.9m vs £0.1m in FY21) and underpinned by a material q-o-q growth in prescriptions during FY22 (25,200 vs 2,500 in FY21). Encouragingly, this trend has continued in Q123 (10,500 prescriptions; +12% q-o-q growth) despite initial operational disruptions related to the integration. With the salesforce approaching full strength (total 100 people) by May, we anticipate H223 to be a vital period for sales traction and market coverage. We have updated our FY23–24 pricing and costs estimates for the FY22 results but maintain our long-term Accrufer growth assumptions. Our revised valuation is £388.9m (£403.4m previously).

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