Record offers impressive results and a dividend hike

The reinvigoration of currency manager Record (REC:94p) under the leadership of chief executive Leslie Hill continues to deliver impressive results. Since she joined the group in March 2020, the company has lifted assets under management equivalents (AUMe) by almost 50 per cent, increased revenue by 79 per cent, and delivered 91 per cent growth in pre-tax profit.

Moreover, with the benefit of Record’s cash-rich balance sheet, the board is maintaining a policy of paying out a high proportion of post-tax profit as dividends, declaring a 15 per cent higher dividend per share of 5.18p in the latest financial year, up from 2.75p three years ago.

The eye-catching headline numbers have been driven by a raft of organic growth initiatives, diversification of the product mix into higher-margin scalable products and by acting as currency manager to asset managers. An ability to deliver market-leading returns is helping, too. For instance, Record’s Emerging Market Sustainable fund [run in collaboration with a European wealth manager] has outperformed the relevant local debt benchmark by 17.35 percentage points since launch in June 2021.

Attracting a new client base

Interestingly, international asset managers are now starting to recognise that large-scale passive currency hedging is a specialist activity, where scale and technology infrastructure means that outsourcing to a company such as Record is a cost-effective choice. Asset manager passive hedging mandates are often technically challenging, but also offer much better fee rates than institutional clients' mandates.

Some of these asset managers operate in the private debt markets, a sector of the market that has experienced strong growth following the 2008-09 global financial crisis, supplanting banks as a significant source of loan capital. Importantly, there hasn’t been any significant fee compression in this segment, so these currency mandates offer an attractive risk-adjusted return, and a new source of potential growth for Record.

Three-year growth targets

A year ago, Hill outlined the board’s strategy to generate £60mn of revenue by 2025, while improving margins. Expect more details to emerge later this year of the new products, new clients and new ventures that will help drive the group towards that target.

Of course, inflationary pressures mean that overheads are rising, too, so it’s reassuring to see group operating margin edge up to 32 per cent in the latest annual accounts, highlighting Record’s ability to absorb higher costs in a positive revenue cycle and deliver healthy profit growth, too.

Although analyst Rae Maile at broking house Panmure Gordon conservatively pencils in a flat profit performance this year, this is an incredibly low bar given the group’s recent track record of overdelivering. I strongly expect upgrades as the new financial year progresses. It’s also worth noting that if Record hits its £60mn revenue target for the 2024-25 financial year, the group could be making operating profit of £20mn and earnings per share (EPS) of 8p, or a third higher than in the financial year just ended.

It suggests that the shares, which have delivered a 153 per cent total return (TR) in my 2018 Bargain Shares Portfolio, during which time the FTSE Aim All-Share TR index has lost 24.5 per cent of its value, are rated on a modest price/earnings (PE) ratio of 11.6 for the 2024-25 financial year, assuming management hits its targets. Add to that the 5.5 per cent current dividend yield, and the share price outperformance looks highly likely to continue for some time yet. My target price is 125p. Buy.

■ Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com. The books are priced at £16.95 each plus postage and packaging (P&P) of £3.95 [UK], or both books can be purchased for the promotional price of £25 plus P&P of £5.75.