River & Mercantile heralds transformation

River & Mercantile (RIV) registered slight declines in underlying revenue and pre-tax profits for its June year-end, but that was set against an 8 per cent increase in assets under management (AuM) to £47.6bn. Performance fees were also on the rise, increasing to £6.4m from £1.2m in the prior year.

Wholesale gross sales increased by 180 per cent with an improvement in net flows of £554m from FY 2020. James Barham, group chief executive, said that “the deepening and broadening of our investment capabilities, have delivered earlier than anticipated”.

The investment group also brought in 12 new fiduciary clients during the year, delivering an additional £4.9bn of fiduciary and derivative AuM and assets in transition, all of which are now fee earning.

The transition doesn’t stop there. A week prior to the results, the group announced the proposed sale of its Solutions division to Schroders (SDR) for an enterprise value of £230m, equivalent to a premium of 28.2 per cent over River & Mercantile’s undisturbed market capitalisation on the day prior to news that it had received several expressions of interest in the division. Management anticipates that the deal will allow the group to evolve into a specialist asset manager.

One imagines that the shares will be tightly held prior to a consultation on the use of the sale proceeds, though management indicated the group will return most of the proceeds to shareholders. Though central bank decisions could have an increased bearing on capital market in the near-term, the group has no external borrowings and, by extension, minimal exposure to interest rate risk. Consensus estimates for FY 2022 envisage further growth, with AuM pitched at £52.5bn. A forward rating of 21 times forecast earnings is hardly extortionate, but we are circumspect given macro uncertainties. Hold.

Last IC view: Hold, 245p, 15 Oct 2019