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River and Mercantile hindered by timing

Although the advisory and investment solutions group grew its fee-earning assets under management, this was heavily weighted towards the second half
October 15, 2019

Against a challenging backdrop, advisory and investment solutions group River and Mercantile (RIV) expanded its fee-earning assets under management (AUM) by 18 per cent to £39.8bn in FY2019. But with growth heavily weighted towards the second half, net management and advisory revenue rose by only 2 per cent to £65.6m.  

IC TIP: Hold at 245p

Falling short of the 12 per cent medium-term target, net management fees increased by just 3 per cent. This came amid a 22 per cent decline in wholesale equity solutions as negative retail sentiment fuelled £253m in net outflows. Meanwhile, with an overhanging Competition and Markets Authority (CMA) review into the fiduciary management sector, advisory fees declined by 2 per cent to £10m. With that investigation now complete, the group anticipates an industry-wide re-tendering of mandates will yield new business wins.

Performance fees rose to £12.5m, enabling further performance-related special dividend payments. However, reflecting the unlocking of previously deferred rewards in fiduciary management, performance fees are expected to be “significantly lower” next year.

Higher administrative and remuneration costs weighed on statutory earnings as external research expenditure increased in the wake of MiFID II. Some £1.1m in additional administration expenses are expected in the near term as the group invests in product initiatives and expands in Australia and the US.

Broker Numis expects adjusted pre-tax profit of £18.2m and EPS of 17.9p in 2020, rising to £22.9m and 22.9p in 2021.

RIVER AND MERCANTILE (RIV)  
ORD PRICE:245pMARKET VALUE:£ 209m
TOUCH:245-249p12-MONTH HIGH:305pLOW: 210p
DIVIDEND YIELD:6.7%PE RATIO:15
NET ASSET VALUE:76p*NET CASH:£1.8m
Year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201552.610.510.213.0
201647.27.27.29.5
201768.416.416.519.7
201874.818.518.818.6
201978.116.816.216.4
% change+4-9-14-12
Ex-div:28 Nov   
Payment:20 Dec   
*Includes intangible assets of £30.8m or 36p a share, **Includes second interim dividend and special dividends of 6p