Quilter sticks to buybacks

“Operational efficiency” is the sort of thing investors would probably say they want from the businesses they own. But it’s also a vague term. Step forward Quilter (QLT), which heralded the discipline in announcing a 3 per cent drop in operating expenses in 2020.

Such a contraction matters to investment managers, which often benefit from rising asset prices but constantly struggle to justify their fees in a competitive market. For Quilter to have cut overheads in a year in which acquisition costs climbed £12m, regulatory levies and charges again rose, and Covid-19 added a further £5m headwind therefore feels impressive.

It will likely prove short-lived, however, given that £40m of savings – equal to 6 percentage points of the group-wide operating margin – were “tactical” responses to the pandemic.

This year, management will have a harder time again holding back bonuses, marketing development spending, even if another £15m in annual savings has been identified as part of a broadly-defined optimisation programme that reduced run-rate costs by £22m in 2020, and included the high-wire platform transfer exercise that completed last month.

Beyond costs, shareholders could probably do with a bit more ambition around the top line. Though client asset retention levels rose from 88 to 92 per cent in 2020, net new client money came to just 1.4 per cent of opening assets, gross sales fell, and the return on equity dipped to 7.6 per cent.

So while a new £100m share buyback looks a better use of capital than a special dividend, one wonders what fresh ideas might follow the possible sale of the international arm, a review of which is expected imminently. A bigger cash pile is not a growth strategy. Hold.

Last IC View: Hold, 156p, 13 Jan 2021