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How does 2017's first premium listing stack up?

The pension services provider claims to offer income and growth potential thanks to its counter-cyclical business
February 15, 2017

Pension administration and consulting provider Xafinity was set to become this year's first premium main market listing on the London Stock Exchange on Thursday. Retail investors were offered shares for an initial price of 139p each, giving a market capitalisation of £190m. This also makes it the largest IPO thus far in 2017. Management hoped to raise net proceeds of £46m, which it will use along with existing facilities to reduce net debt to £33m from £86m immediately prior to the offer.

The Financial Conduct Authority this week issued a discussion and consultation paper into how more companies can gain a premium listing, given the tougher regulatory requirements involved (see this week's taking stock).

Xafinity's core consulting business provides actuarial and investment advice and administration services to defined-benefit (DB) pension schemes. Co-chief executive Paul Cuff said despite an increasing number of DB schemes becoming closed to new members or future accrual, there are still opportunities for long-term profit growth. "The run-off of these schemes will take 40 to 50 years because the pension promises that have been made include people in their 30s and 40s," he said. Mastertrust National Pension Trust was recently launched in the defined-contribution market, in response to the 2015 pension freedom changes. The group also administers more than £1bn in self-invested personal pensions (Sipps) and small self-administered scheme (Ssas) assets.

Its core services are compliance-driven and run according to a statutory timetable, making the business counter-cyclical and "Brexit-proof", Mr Cuff said. Around 82 per cent of the group's revenue is recurring, while its client churn rate during the past three years was just 2 per cent. The IPO will hopefully enable the pension services group to gain ground in a highly-fragmented market and could pave the way for transformational acquisitions, Mr Cuff said, although there are no deals in the pipeline yet.

Management plans to pay out up to 67 per cent of adjusted post-tax profit in dividends, starting from its financial year-end in March. Based upon the initial listing price and financial performance at present, this would generate a dividend yield of around 4.6 per cent. Net debt stood at hefty 110 per cent of total assets at the end of September; however, this was as a result of refinancing its loan notes with bank debt, Mr Cuff said.

Xafinity was formerly owned by Equiniti (EQN), before being bought by private equity company CBPE four years ago. The IPO is expected to raise £125m for the selling shareholders, including CBPE.