- Record assets under management equivalent (AUMe)
- Performance fees rise 10-fold to £5.8mn
- Focus on higher-margin mandates driving profit growth
Currency manager Record (REC:84p) has delivered record assets under management for the 2022-23 financial year, driven by multiple organic growth initiatives, diversifying its product mix into higher-margin scalable products and acting as currency manager to asset managers.
Assets under management equivalent (AUMe) increased from $86bn to $87.7bn in the fourth quarter to 31 March 2023, up from $83.1bn 12 months earlier. The result was buoyed by a near-quadrupling of net inflows to $9.1bn over the course of the financial year. This more than offset the negative impact of last year’s turmoil in global financial markets on the mandates being hedged.
It’s worth noting, too, that even though hedging mandates on clients’ equity holdings account for a quarter of Record’s AUMe, Record is far more insulated from the impact of declining equity markets as its clients' underlying equity portfolios generally fare better than the wider market. Performance fees rose more than 10-fold to £5.8mn, highlighting the returns the group is earning for its clients, too.
Initiatives driving growth in AUMe include the Dublin-based emerging market sustainable finance fund that launched in partnership with global investment bank UBS in 2021, and last summer’s launch of a Luxembourg-based Municipal Loan Fund with Universal Investment as fund manager.
Higher-margin mandates driving profits higher
A focus on higher-margin products is driving up profitability, too, hence why analysts at Panmure Gordon expect Record to report 31 per cent higher pre-tax profit and earnings per share (EPS) of £14.7mn and 5.9p, respectively, on revenue of £45mn in the 12 months to 31 March 2023.
Moreover, with the benefit of a cash-rich balance sheet – net cash is forecast to close 23 per cent higher at £21.4mn (10.7p) – the board can maintain its policy of paying out all net profit as dividends. On this basis, the shares are rated on a price/earnings (PE) ratio of 14 and offer a dividend yield of 7 per cent.
Although Panmure pencils in a flat profit performance in the 2023-24 financial year, the broker’s forecasts only embed £2mn of performance fees, well below the company’s expectations and only a third of the level earned in the year just ended. The implication being that we can expect earnings upgrades as the year progresses. I don’t think investors have cottoned onto this fact, nor the potential for material outperformance, creating an information void to exploit.
Record’s shares have delivered a 132 per cent total return (TR) since I included them in my 2018 Bargain Shares Portfolio, during which time the FTSE Aim All-Share TR index has shed 17 per cent of its value. I expect the outperformance to continue and rate the shares a buy ahead of the annual results on 30 June 2023. Buy.
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