Ashcourt Rowan (ARP) has had a torrid recent past. But while extensive restructuring has put the wealth manager's revenues and margins back on a positive trajectory, the market is yet to catch on - and its shares are valued at a third less than its peer group.
- Restructuring now starting to have an impact
- Net cash
- Cheap rating against peers
- Significant cost savings
- No dividend
- Reputational damage still to heal
To appreciate Ashcourt Rowan's potential as a turnaround situation one needs to understand its past. Two years ago, the business was in a mess. In the year to March 2011, the company had £4.5bn in assets and revenue of £35m, but still managed to make a pre-tax loss of £5.75m. The economic climate certainly didn't help, but a bulk of the malaise was down to poor management. But things started to change in September 2011 with the appointment of Jonathan Polin as chief executive. One of his first tasks was to take a telephone call from the Financial Services Authority (FSA) serving the company with a Section 166 order. That required the appointment of a qualified third party to scrutinise the company's workings for any possible breaches of regulatory rules. And there were plenty.
What made it worse was the fact that Ashcourt's Savoy Investment Management business, where the irregularities occurred, had been served with a Section 166 notice in 2009, the findings of which it failed to implement fully. The company was fined a relatively modest £412,000. The next challenge was to make the company compliant with the Retail Distribution Review (RDR), progress on which was only achieved in September last year.
| ASHCOURT ROWAN (ARP) | ||||
|---|---|---|---|---|
| ORD PRICE: | 155p | MARKET VALUE: | £42m | |
| TOUCH: | 154-158p | 12-MONTH HIGH: | 158p | LOW: 132p |
| DIVIDEND YIELD: | 1.3% | PE RATIO: | 15 | |
| NET ASSET VALUE: | 176p* | NET CASH: | £8.2m | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 35.7 | -2.51 | -0.2 | nil |
| 2011 | 35.1 | -5.75 | -28.7 | nil |
| 2012 | 36.4 | -2.36 | -10.4 | nil |
| 2013** | 34.6 | 1.30 | 4.8 | nil |
| 2014** | 37.1 | 2.90 | 10.1 | 2.0 |
| % change | +7 | +123 | +110 | - |
Normal market size: 2,000 Market makers: 8 Beta: 0.18 *Includes intangible assets of £37m, or 137p a share **Canaccord Genuity forecasts, underlying EPS and PBT estimates not comparable with prior years | ||||
Another task was to bolster the balance sheet with an £8.5m fundraising to re-engineer the business. It was also decided to sell off administration of the pension trustee business to Mattioli Woods for £1.325m, of which £625,000 will come in performance-related deferred payments. Meanwhile, the Savoy operation was integrated with Ashcourt Rowan Asset Management and the operating platform was subsequently outsourced to TD Wealth. These moves have led to a significant reduction in the number of regulated entities, allowing management to concentrate on growing the asset management and financial planning side, which will focus on a 'mass-market' service suited to the post-RDR environment. There are also annualised savings of £6m, which represent more than a quarter of the cost base.
The results of all of these changes are now starting to show through, with second-half revenue up by £1.1m on the first half to £17.1m, although full-year revenue will be hit by around £1.7m as a result of several Savoy asset managers moving to Walker Crips, for which the stock broker will pay £385,000. Underlying margins have jumped from 2 per cent last year to double digits in the second half, and underlying cash profits before exceptional items are already running ahead of market estimates at £2.8m.
