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XPS Pensions integration slows growth

However, management expects revenue growth to accelerate thanks to added scale
November 29, 2018

The costs associated with merging Punter Southall’s businesses into existing operations not only forced XPS Pensions (XPS) into a loss during the first half, but the added distraction also meant revenue growth slowed to 3.3 per cent on a pro-forma basis. However, co-chief executive Paul Cuff says the growth rate should pick-up during the second half, with several contracts coming to fruition. The recent High Court judgement ordering Lloyds (LLOY) to equalise pension payments for men and women should provide a further influx of work as other companies are forced to follow suit, he says.

IC TIP: Hold at 161p

The added scale granted by the merger helped the pensions administration and investment consultancy score some larger deals, including an actuarial appointment to a scheme valued at over £1bn and an investment mandate to a £800m scheme during the period. The pensions arm – which accounted for more than half of revenue – may have won 10 material clients, but client numbers dropped due to the non-recurrence of several one-off projects. Still, recurring revenue remained high at 92 per cent. The acquisition of Kier Pensions Administration was completed after the year end, extending exposure to public sector schemes.

Analysts at Liberum expect adjusted pre-tax profits of £26.1m for the year to March 2019, giving EPS of 10.2p (from £16.9m and 8.8p in 2019).

XPS PENSIONS (XPS)   
ORD PRICE:161pMARKET VALUE:£328m
TOUCH:161-163.5p12-MONTH HIGH:194pLOW: 150p
DIVIDEND YIELD:4%PE RATIO:na
NET ASSET VALUE:73p*NET DEBT:32%
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201724.53.82.22.1
201852.2-1.1-0.52.3
% change+113--+10
Ex-div:10 Jan   
Payment:7 Feb   
*Includes intangible assets of £207m, or 102p a share