Liontrust breaks with the herd

The past year has not been a happy experience for many asset managers as investors have pulled funds in the face of market declines. However, Liontrust Asset Management (LIO) has swerved the worst of the market downturn, despite net outflows of £2.2bn for the half. The company, along with the rest of the sector, seems to have reconciled itself with the market volatility that has characterised the year so far. A decrease in assets under management and administration of 5.5 per cent to £31.7bn illustrated the core of the problem, but there were some signs of improvement.  

Difficult market conditions were a factor in impairments, with more than £12mn knocked off the value of two of Liontrust’s acquisitions. Some £4mn of this related to Majedie Asset Management, which Liontrust acquired for £80mn earlier this year. Unforeseen outflows at Majedie meant its goodwill valuation had to be reassessed. It was a similar story at Architas, which incurred a charge of £8.8mn.

Broker Numis said the impairment at Majedie was particularly disappointing given that the deal completed only six months ago. However, it noted that November had seen a modest improvement in inflows: “Clearly, this is a very short time period and too early to extrapolate anything, but nonetheless a welcome respite from the significant net outflows seen this year,” the broker said.

Our analysis that Liontrust’s shares were oversold earlier this year turned out to be correct and the company has remained resilient in difficult market conditions. The forward price/earnings ratio of 10 times Numis’s earnings forecasts for 2023 still represents a significant discount to its long-term average. Throw in a decent dividend yield and the basic case remains intact. Buy.

Last IC View: Buy, 1,002p, 30 Jun 2022