- First-half revenue up 19 per cent to £20.6mn
- Operating profit of £0.9mn reverses £0.5mn loss
- Net cash of £2.6mn boosted £5mn post period end
- Interim dividend of 0.07p paid in December 2023
Aim-traded financial services group Tavistock Investments (TAVI: 5.25p) is successfully rebuilding profitability through selective acquisitions and organic growth initiatives after selling off its profitable multi-asset manager to discretionary fund manager Titan Wealth Services.
Last April’s earnings-accretive acquisition of Precise Protect, a fast-growing insurance and protection business based in Bangor, Northern Ireland, has played a major part in the return to profit (‘Two valuation anomalies that are worth exploiting’, IC, 13 April 2023). Precise Protect boosted the group’s client base by almost half to 110,000 private clients, doubled its network of financial advisers to more than 400, and is lifting revenue through upskilling of its mortgage and protection advisers to independent financial advisers (IFAs) through the group’s academy. The contribution from Precise Protect and Tavistock’s growing advisory business now cover central overheads, hence the dramatic improvement in profitability. It’s not unreasonable to expect an even better outcome in the second half.
Admittedly, the £10mn acquisition of a 21 per cent stake in regulated IFA group LEBC has not worked out. Post the half-year end, LEBC sold its wholly owned subsidiary Aspira Corporate Solutions to Titan Wealth for an initial cash consideration of £20mn and deferred consideration of up to £25mn over the next three years. However, it does give Tavistock the opportunity to recycle its share of the cash proceeds into further earnings-accretive acquisitions.
The group’s closing net cash of £2.6mn has also been boosted by the receipt of a £5mn deferred earn-out payment from Titan Wealth on the multi-asset manager disposal. Assuming an identical third and final earn-out payment of £5mn later this year, and total cash receipts of at least £5.6mn from the LEBC disposal – in line with expectations of LEBC’s majority shareholder – then Tavistock’s cash pile could balloon to £18.2mn, a sum equating to 62 per cent of its market capitalisation of £29.4mn. That leaves a growing advisory business that should be making annual operating profit of at least £1.8mn (after central overheads) for a bargain basement price.
Following the results, chief executive Brian Raven purchased 0.8mn shares to lift his holding to 12.6 per cent. It’s not difficult to see why given that sum-of-the-parts valuations are more than double the current share price. So, having included the shares, at 4p, in my 2022 Bargain Shares Portfolio, and reiterated that advice, at 5.25p, when I covered the annual results (‘Investors are underestimating Tavistock's rebuild’, IC, 20 September 2023), the shares remain a value buy.
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