Liontrust outflows hit record £4.8bn ahead of Gam deal

The past couple of years have amply demonstrated how a combination of changing tastes, plus the all-important direction of interest rates, can squeeze the income of even the most popular of companies. In this respect, Liontrust’s (LIO) results are only obeying the cast-iron law of the asset management market: companies struggle when their funds lose their lustre and investors distrust the management’s solutions.

And there has been a considerable amount of tarnishing over the past year, not least because of the basic fact that ESG-type shares are heavily exposed to rising interest rates. 

In addition, it is fair to say that investors have been pulling cash from equities to go either into cash itself, or into bond funds to take advantage of higher interest rates and their greater sensitivity to monetary policy. The net effect is that Liontrust’s net outflows hit a record £4.84bn for the year, affecting its total assets under management, which ended the year down 6 per cent to £31.4bn.

There was also clear evidence that its natural operational gearing had gone into reverse as rising administrative expenses – because of the full integration of Liontrust’s various acquisitions – combined to chop away at reported profits. For example, non-staff expenses in these results increased by a notable £9mn to £37.1mn, compared with 2022.  

Most of the prior commentary had focused on Liontrust’s proposed £96mn acquisition of Swiss fund group Gam, whose board has recommended the deal. Analysts have generally been cool on the tie-up, with Numis’s David McCann noting: “We continue to believe that this level of restructuring costs (£45mn), being 0.8 times targeted savings, looks very low in the context of prior and similar transactions, and is one of the reasons we believe there is much risk of value destruction.” Numis reckons investors will have to carefully take this into account ahead of the vote on the deal at the extraordinary general meeting on 7 July. Numis values the restructured Gam business at £113mn, compared with the expected total £167mn in acquisition costs.

For its part, the broker forecasts earnings per share (EPS) for 2024 of 87.7p, giving a forward price/earnings ratio of 8.5. This is cheap by sector standards, but it seems the market is discounting the shares before taking a definitive position. Move to hold.

Last IC View: Buy, 1,166p, 18 Nov 2022