- Record annual pre-tax profit of £30mn buoyed by disposals
- Advisory business cash profit up two-thirds to £4.1mn
Aim-traded Tavistock Investments (TAVI:8.25p), a financial services group that has more than 175 advisers across the UK helping more than 40,000 clients look after £4bn of investments, has delivered a 30-fold increase in annual pre-tax profit to £30mn, buoyed by the sale of its multi-asset manager, Tavistock Wealth, to discretionary fund manager Titan Wealth in the summer of 2021.
The £20mn initial cash consideration from the disposal transformed Tavistock’s balance sheet, almost trebling net asset value to £43.5mn and wiping out all borrowings. The group closed the financial year with net cash of £15.2mn (2.7p a share). Tavistock is also entitled to contingent consideration of £20mn (3.6p a share) linked to the maintenance of an agreed level of gross revenue and payable in three equal cash annual instalments.
Despite making the disposal, Tavistock’s annual revenue surged 18 per cent to £34mn, driven by the group’s advisory business. The unit posted 35 per cent higher annual revenue of £31.3mn, more than the group made in the previous financial year, and delivered a 64 per cent increase in earnings before interest, taxation, depreciation and amortisation to £4.1mn. The average revenue contribution per adviser rose by more than a fifth to £210,000. I maintain the view that Tavistock’s advisory business is worth £64mn (11.5p) as a standalone entity based on a multiple of 15 times historic cash profit and a multiple of two times annual revenue – transactions in the sector have been well above these levels.
Since the financial year-end, Tavistock has used £6mn of its £15.2mn closing cash pile to acquire a 21 per cent stake in regulated IFA group LEBC Holdings (deferred consideration of £4mn due in April 2023), and invested £1.5mn in LEBC Hummingbird (£1.5mn balance payable in November 2022). On this basis, Tavistock has a sum-of-the-parts valuation of £100mn (18p a share), or more than double the current share price.
The deep discount to sum-of-the-parts valuations and the ongoing strong performance of Tavistock’s advisory business has been attracting investor interest, hence why the share price has doubled in my market-beating 2022 Bargain Shares Portfolio. In the same 32-week period, the FTSE Aim All-Share Total Return index has shed 23 per cent of its value. Tavistock's share price is also up slightly since the pre-close trading update three months ago (‘A trio of mis-priced investment opportunities’, IC, 27 June 2022) in a market down 8 per cent, having also paid out an interim dividend of 0.07p a share in late July. Expect the absolute and relative outperformance to continue. Buy.
Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards
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