Currency manager Record (REC:31p) may be the laggard in my market-beating 2018 Bargain Shares Portfolio, but the share price performance certainly doesn't reflect the company's trading performance.
Record earned performance fees of £1m in the six months to the end of September 2018 to boost revenues to £12.6m, representing 9 per cent growth against the second half of the last financial year. Moreover, with operating costs only edging up to £8.3m, this meant that pre-tax profits increased by 14 per cent to £4m on the previous six months, an outcome £800,000 ahead of the forecasts of analyst Rae Maile at Cenkos Securities. Half-year earnings per share (EPS) of 1.63p covered a maintained half-year dividend of 1.15p a share at cost of £2.3m. A strong balance sheet – net cash of £22.8m equates to 11.5p a share – means that Record can pay out all its net profits, which is why Cenkos predicts a final dividend per share of 1.15p alongside a special payout of 0.35p based on EPS of 2.65p.
It’s worth pointing out that ongoing tightening of US monetary policy, US dollar strength and an uncertain global geopolitical backdrop has accentuated volatility across financial markets to create more benign conditions for attracting new clients looking to hedge their currency risk, and not just in the US. Also, sterling weakness creates a positive currency translation effect on fees Record earns from international clients.
True, Cenkos predicts that full-year pre-tax profit could slip from £7.3m to £6.7m to reflect the change in some passive hedging mandates from management fee-only to a lower management fee and a performance fee basis. However, the broking house has only embedded a £300,000 performance fee in the second half, and forecasts exclude any new client wins, predictions that could prove too conservative.
On a cash-adjusted forward PE ratio of seven, and offering a prospective dividend yield of 8.5 per cent, I continue to rate Record’s shares a buy.
| 2018 Bargain shares portfolio performance | |||||
| Company name | TIDM | Opening offer price on 02.02.18 (p) | Latest bid price on 26.11.18 (p) | Dividends (p) | Total return (%) |
| Parkmead | PMG | 37 | 53.2 | 0 | 43.8 |
| PCF | PCF | 27 | 35 | 0.19 | 30.3 |
| Sylvania Platinum | SLP | 14.5 | 17.5 | 0.35 | 23.1 |
| Titon | TON | 159.86 | 184 | 1.75 | 16.2 |
| Shore Capital | SGR | 213 | 234 | 10 | 14.6 |
| U+I | UAI | 205 | 218.5 | 15.5 | 14.1 |
| Conygar | CIC | 160 | 169 | 0 | 5.6 |
| Crystal Amber | CRS | 207.2 | 210 | 2.5 | 2.6 |
| Mpac | MPAC | 156 | 125 | 0 | -19.9 |
| Record | REC | 43.3 | 30.1 | 1.65 | -26.7 |
| Average | 10.4 | ||||
| FTSE All-Share Total Return index | 7088 | 6811 | -3.9 | ||
| FTSE Aim All-Share Total Return index | 1184 | 1035 | -12.6 | ||
| Source: London Stock Exchange share prices | |||||
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