XPS adds new mandates

XPS Pensions (XPS) is essentially the plumber of the company pension world, quietly fixing leaks, installing pipework and generally making sure that pension payments, actuarial reviews and administration flows with the minimum of fuss. The half-year results showed steady progress, along with some significant mandate wins, as the company benefits from its ramp-up in size and operational capability.

The most notable of these was the company’s appointment in October as pensions adviser to BT (BT.A) – a company with a yawning pension deficit. Given the size of some of the other advisory companies bidding for the contract, this made XPS’s success even more impressive. Revenue growth was all organic and regular changes to regulation around guaranteed minimum pensions mean that the pipeline of advisory work alone should generate revenue of £4.5m by the end of the financial year.

However, the ramp-up in operations to service its larger mandates did raise costs in the first half, particularly indemnity insurance and IT. The consequence was a rise in adjusted administration expenses of 11 per cent to £51.8m. In order to support its expansion, the company also shook hands on a new four-year £100m revolving credit facility with a consortium of UK banks.

With up to 95 per cent of its revenues recurring through repeating fees, which are often contracted, XPS has work stretching decades into the future as a host of defined-benefit company schemes begin to pay out on (often under-resourced) assets. This means there is little chance of our longstanding advice becoming superannuated any time soon. Buy.

Last IC view: Buy, 115p, 2 July 2020