Undervalued Impax on a roll

Broker Peel Hunt has already twice upgraded its estimates for 2016-17's earnings per share since Impax issued its latest first-half results in May. In addition, the broker reckons its 2018-19 forecasts could increase by a further 17 per cent if momentum in growing assets under management is maintained.

Impax invests predominately in listed equities via four strategies, which include what it labels 'resource efficiency markets' (mostly food, energy and water companies). It also invests in private equity infrastructure and 'sustainable' (ie, low energy consumption) property. The appetite from investors for its services is growing. During the first half of the year, its gained net inflows of £870m. Along with £339m in investment gains, this took total assets under management to £5.7bn. That was despite its strategies having little or no exposure to financial or energy stocks – sectors that recorded the biggest gains during the period.

However, during its third quarter it added a further £871m in net new business – compared with £573m during the two years to 31 March 2017. The good news is that the vast majority of the assets Impax manages are on behalf of institutional clients, which are less likely to withdraw funds due to short-term changes in market sentiment. Therefore, mandates are typically larger and longer-term, even if they come with lower profit margins than retail business. There is also increasing pressure being put on institutional investors to place greater importance on environmental issues. Take, for example, a task force on climate-related financial disclosures which was backed by the G20 group of wealthy and fast-growing nations. The task force recommended that asset managers, financial institutions and companies disclose information to enable stakeholders to assess and price climate-related risks and opportunities.

Impax is also benefiting from its distribution agreements, notably with BNP Paribas, an investment bank. BNP puts its own label on products based on Impax’s investment strategies. During the two years to 31 March BNP had raised €450m (£405m) for funds based on Impax’s food and agriculture strategy alone, particularly to investors in continental Europe. However, Impax is also gaining traction in North America. For example, it commenced a $100m (£76m) mandate for a segregated account based on its 'leaders' strategy, which targets companies that are resource efficient and environmental leaders.

Admittedly, flows can be particularly changeable for asset managers with a tightly-defined focus, such as Impax. The dividend yield offered with the current share price is also lower than some smaller asset managers, such as Liontrust (LIO). 

However, the significant growth potential does not seem to be reflected in the share price. Earnings per share for that year are forecast to be 7.6p compared with underlying earnings of just 2.9p for 2015-16.