A pre-close trading update at the time highlighted strong momentum across a broad range of funds managed by the group which encompasses 10 open-ended investment companies (Oeics), two unit trusts and four investment trusts. Total assets under management (AUM) surged by a quarter to £2.78bn in the second half of last year, a sharp acceleration on the 8.5 per cent growth rate in the first half. So, having turned in pre-tax profits of £800,000 in the first six months of 2015, I was expecting Miton to produce profits of around £1.8m in the second half. In the event the company reported second half pre-tax profits of £2.2m which meant that full-year EPS of 1.43p smashed house broker Peel Hunt’s 1.2p estimate out of the water. Shareholders are being rewarded with a 0.67p a share payout, up from 0.6p a share in 2014, so the shares offer an attractive dividend yield of 2.3 per cent.
Importantly, momentum has continued into the new financial year with AUM rising to £2.9bn by the end of last month, a performance that reflects net inflows of £185m despite volatile financial market conditions. This highlights the fact that eight of the group’s 10 funds have produced first quartile investment performances since launch or since the current managers took over the management of the strategy. Key to the outperformance is Miton's CF UK Value Opportunities strategy fund which accounted for £783m of AUM at the year-end, up from £211m at the start of 2015 and £378m at the end of June. The fund is run by shrewd asset managers George Godber and Georgina Hamilton and is “increasingly seen as an important component of clients’ portfolios”, according to Miton’s chairman Ian Dighé.
The CF Miton UK Multi Cap Income Fund also saw significant inflows as AUM increased from £378m to £586m by the year end. The Miton UK MicroCap Trust (MINI: 54p) which raised gross proceeds of £50m at launch on 30 April 2015, and a further £28m subsequently, has clearly proved popular too. Investors backing the new fund have been rewarded with a total return of 7 per cent since launch, a marked outperformance of the FTSE Aim index.
Business with strong momentum
Furthermore, with the benefit of a strong balance sheet – net funds of £14m equates to 8p a share – Miton has been investing in its fund offering and launched the CF Miton European Opportunities Fund at the end of last year. The company also re-named two of its funds CF Miton Defensive Multi Asset Fund (formerly CF Miton Strategic Portfolio) and CF Miton Cautious Multi Asset Fund (formerly CF Miton Special Situations Portfolio) and moved them into more appropriate Investment Association sectors to improve the visibility and clarity of these two products. Also, at the start of October, its PFS Darwin Multi Asset Fund was re-named PFS Miton Cautious Monthly Income Fund. Mr Dighé believes this fund will “become increasingly popular with investors looking for a diversified source of monthly income in light of pension regulation changes.”
The bottom line is that with Miton now turning a corner and its investment performance pulling in strong funds inflows then there is a very decent chance that profits will rise sharply as the operational gearing of the business kicks in. This explains why analyst Stuart Duncan at broking house Peel Hunt raised his 2016 pre-tax profits estimate by 8 per cent to £4.4m, up from £3m in the year just reported, to produce EPS of 2p. Mr Duncan also anticipates a further strong rise in the dividend to 0.8p a share. On this basis, the shares are only rated on a forward PE ratio of 10.5 after stripping out that bumper cash pile, and offer a decent prospective dividend yield of 2.7 per cent.
In my view, that still represents decent value. So having first spotted the potential in this small cap back in the spring when Miton’s shares were trading just below 23p ('Poised for a profitable recovery', 4 April 2015), and reiterated that advice at the time of the interim results when the price was 26.5p ('Building momentum', 29 September 2015), they remain firmly on my active buy list. In fact, I feel that my 35p target price may prove too conservative and have edged it up to 38p to reflect the earnings upgrade. Mr Duncan at house broker Peel Hunt is even more bullish, having just upgraded his fair value target price by 20 per cent to 42p post yesterday’s results.
Needless to say, I continue to rate Miton’s shares a decent buy on a bid-offer spread of 29.5p to 30.5p.
Please note that I have published four columns today, six so far this week, and 15 since Monday last week, all of which are listed below. I am currently working my way through a large number of results announcements from companies on my watchlist. I will endeavour to update my views as soon as possible.
MORE FROM SIMON THOMPSON...
I have written articles on the following companies recently:
■ Plethora Solutions: Take profits at HK$0.079 ('On the takeover trail', 14 March 2016)
■ Somero Enterprises: Buy at 150p; target 185p ('A solid buy', 15 March 2016)
■ 32Red: Run profits at 150p ('32Red in the money, 15 March 2016)
■ Communisis: Sell at 44p ('Patience running short at Communisis', 15 March 2016)
■ Global Energy Development: Sell at 27p ('Global Energy plays waiting game', 15 March 2016)
■ Raven Russia: Sell at 30p ('Raven Russia battens down the hatches', 15 March 2016)
■ Stadium: Buy at 122p, new target price 150p ('Switch on for bumper gains', 16 March 2016)
■ French Connection: Buy at 42.75p ('Return to profitability looms for chic operator', 16 March 2016)
■ Fairpoint: Run profits at 159p ('Fairpoints to make', 17 March 2016)
■ Netplay TV: Buy at 10p ('Netplay's shares spin higher', 21 March 2016)
■ Satellite Solutions Worldwide: Buy at 5.5p, target 9p to 10p ('Blue sky tech play', 21 March 2016)
■ Miton: Buy at 30.5p, new target 38p (‘Riding earnings upgrades’, 22 March 2016)
■ Inland: Run profits at 86p, new target 95p (‘Valuation surge boosts Inland’, 22 March 2016)
■ Pittards: Crystallise loss at 71p (‘Subdued demand hits Pittards’, 22 March 2016)
■ French Connection: Buy at 43p ('Stakebuilding gathers pace at French Connection', 22 March 2016)
■ Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.95 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stockpicking
