- 8 per cent organic growth in assets under management to £7.3bn
- Strong performance from real assets
- Risk to earnings skewed to the upside
Organic growth shows no sign of waning at Gresham House (GHE:810p), a fund manager specialising in renewable energy generation (solar power, wind, and battery storage farms), forestry, infrastructure, and public and private equity investment strategies.
Having reported a 91 per cent rise in first-half underlying operating profit to £13.2mn on 63 per cent higher revenue of £38.5mn, and with the operating leverage of the business highlighted by the five percentage point increase in operating margin to 35 per cent, the risk to earnings remains firmly skewed to the upside. In fact, Gresham House has already earned half of analysts' full-year operating profit estimates of £26.3mn which underpin broking house Canaccord Genuity’s forecast of 17 per cent growth in 2022 earnings per share (EPS) to 53p.
The defensive qualities of the group’s revenue stream certainly stand out in the current uncertain macroeconomic environment. Although assets under management (AUM) from public and private equity strategies fell by 8 per cent to £1.77bn in the first half, this was more than offset by double-digit growth in AUM across Gresham House’s real asset divisions: forestry (11 per cent growth to £3.3bn, making the group the largest forestry manager in the UK); new energy and sustainable infrastructure (AUM up 24 per to £1.5bn); and housing (59 per cent increase to £0.7bn).
Overall, 11 per cent growth in total AUM to £7.3bn compares favourably with the 21 per cent drawdown in the FTSE 250 index in the comparable six-month trading period. The risk to Canaccord Genuity’s year-end AUM target of £7.5bn looks firmly skewed to the upside. Moreover, the directors are using the group’s cash-rich balance sheet – liquid asset and cash of £69.7mn (182p a share) – to develop renewable energy battery storage projects that could potentially realise further gains.
However, despite delivering an enviable record of outperformance since I initiated coverage on the shares, at 312.5p, in my 2016 Bargain Shares Portfolio, and paying out total dividends per share of 25.75p in the interim, it’s still possible to buy the shares on modest forward price/earnings ratios of 13.7 (2023) and 11.9 (2024). These are low multiples for a business that is projected to deliver compound EPS growth of 27 per cent over that two-year forecast period based on year-end AUM of £8.6bn and £9.8bn, respectively.
So, although Gresham House’s share price has drifted 6 per cent since I covered the pre-close trading update (‘A green energy winner’, IC, 22 July 2022), the shares remain firmly on my buy list. Buy.
Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.
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