For investors, operational gearing is one of the most attractive aspects of the asset management sector. Against a largely fixed cost base, the combination of positive inflows of client money and rising asset prices is normally a reliable formula for earnings growth.
In the case of wealth management group Mattioli Woods (MTW), gearing is less pronounced, although asset prices are also less of an issue, as around 55 per cent of revenues now come from fixed, initial or time-based fees, rather than ad-valorem surcharges.
This has its advantages. Although total client funds moved sideways in the six months to November, a 3.8 per cent increase in gross discretionary assets under management was enough to boost adjusted earnings per share by 8.1 per cent. The adjusted cash profit margin followed suit, rising two percentage points to 28.4 per cent.
Mattioli Woods is not immune to market nerves, which explains the group’s cautiously positive reaction to the general election. Yet following markets’ rocky start to 2020, the major Brexit hurdle ahead, and last year’s suspensions of the Woodford Equity Income Fund and the M&G Property Portfolio, management expects its financial planning-led offering to remain in demand.
So, it would appear, does private capital. Although acquisitions of larger discretionary management companies are likely, competition for choice targets is leading to stretched valuations and a sellers’ market, according to chief financial officer Nathan Imlach.
Consensus forecasts are for earnings per share of 42p for the year to May 2020, and 45.8p in FY2021.
MATTIOLI WOODS (MTW) | ||||
ORD PRICE: | 860p | MARKET VALUE: | £231m | |
TOUCH: | 830-860p | 12-MONTH HIGH: | 860p | LOW: 655p |
DIVIDEND YIELD: | 2.4% | PE RATIO: | 27 | |
NET ASSET VALUE: | 324p* | NET CASH: | £20m |
Half-year to 30 Nov | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
2018 | 29.2 | 5.63 | 16.9 | 6.33 |
2019 | 30.3 | 6.03 | 18.0 | 7.30 |
% change | +4 | +7 | +7 | +15 |
Ex-div: | 13 Feb | |||
Payment: | 27 Mar | |||
*Includes intangible assets of £47.6m, or 177p a share |