Tatton tops the asset manager league

The asset management sector has struggled for fees, relevance and inflows for the better part of a year as investor caution, rising interest rates that improve the return on cash, and some exceptionally choppy markets combined to make the sector something of an investment pariah. However, results for Tatton Asset Management (TAM) seem to vindicate the idea that building long-term relationships with swathes of independent financial advisers (IFAs) is a surer strategy for asset managers than chasing commoditised management fees.

Indeed, demand for model portfolio services (MPS) - low-cost portfolios for IFAs generate the bulk of Tatton’s revenues - showed no sign of abating. The net result was that organic inflows for the period were £1.79bn (£1.28bn in 2022), lifting total assets under management (AUM) to £12.7bn at the period-end. There was some additional help from the acquisition of 50 per cent of 8AM Global, which added assets under influence of £1.14bn.

However, it was noticeable in the results how the company’s profitability is directly correlated to how many IFA firms it can persuade to use its portal; Tatton's number of IFAs increased by 16.5 per cent to 869. Management’s commentary on MPS was that an annual 25 per cent growth rate looks set to continue for the time being. The company thinks that only around 12 per cent of the total £680bn run by financial advisers on investment platforms is signed up to discretionary model portfolios, implying further expansion which is also attracting the larger asset managers.

Elsewhere, Tatton’s mortgage business saw completions increase by 10 per cent to £14.5bn, which meant that divisional revenues increased by 6.8 per cent to £6.4mn, though operating profits were flat at £2.4mn because of investment in the business. Management said a “sense of calmness” had returned to the mortgage market after the disruption late last year caused by the mini-budget, though it added that the year ahead will likely be one of two halves with “essential movers” dominating the market.

Research house Equity Development revised its forecasts upwards and now expects Tatton to generate earnings of 22.5p per share in 2024. That implies a forward price to earnings ratio of 19. That rating is right at the top end, though it is fair to say that the company looks well placed compared with the rest of the sector. The shares are up on our buy tip in January and we think there is still room for further growth. Buy.

Last IC View: Buy, 455p, 12 Jan 2023