Foresight maintains fee growth and fund inflows

Few, if any, asset managers, have managed to maintain both fee growth and fund inflows so far this year. Fortunately, our long-term buy tip ESG-led Foresight Group (FSG) pulled off both in a rare balanced result for the sector in 2022-23. The manager pulled in funds on both an organic and inorganic basis, while maintaining a rising dividend payout. While acquisitions such as Infrastructure Capital contributed to the 35 per cent increase in funds under management (FUM) to £9bn, the results showed considerable resilience as investors with potential inheritance tax (IHT) liabilities used the opportunity to hunt for tax-efficient investment vehicles – which is an available option within Foresight’s suite of infrastructure and alternative investments.

This benign dynamic means that management fees from organic funds growth grew by £14.5mn for the year, with acquisitions adding a further £12mn to the total. This proved to be important in keeping Foresight’s reported pre-tax numbers essentially stable, with no sign of a reversal in its operational gearing affecting the bottom line.

On paper, administration costs increased by a hefty 30 per cent to £70.6mn, although when the impact of share-based payments and the impairment of acquired intangible assets is stripped out,  the underlying costs increased by a more sedate 12.9 per cent. Costs rose mainly alongside the servicing of higher levels of FUM, although legal and professional costs were lower as projects matured.

Numis values the shares at a price/earnings ratio of 12 for 2024. It argues that fundraising will probably be more challenging in the second half of the year, but that there are signs of a turn for the better. We tend to agree and maintain our recommendation. Buy.

Last IC view: Buy, 404p, 28 Jul 2022