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Liontrust offers growth and income at a discount

The UK-focused asset manager's shares are not priced for its high potential growth
January 18, 2018

Given the uncertainty about how the Brexit negotiations will pan out for the UK’s financial services sector, investing in UK-focused Liontrust Asset Management (LIO) may seem something of a contrarian bet. However, the active manager has a track record of keeping the cash flowing in, even when the macroeconomic backdrop looks shaky. For instance, when many of its peers were losing business following 2016’s referendum, Liontrust managed a very respectable £216m in net inflows in the last six months of that year. That’s not to say management isn’t making efforts to diversify its asset mix and client base. What’s more, despite earnings that are forecast to jump by more than a third this year, based on a price-to-earnings growth (PEG) ratio well below one, its shares are not priced for such high growth.  

IC TIP: Buy at 540p
Tip style
Growth
Risk rating
Medium
Timescale
Long Term
Bull points

High net inflows

Trading at a discount

Diversifying asset mix

Net cash

Bear points

Heavily UK exposed

Retail bias

Liontrust reported a tenth consecutive quarter of net inflows at the end of December 2017. During the final three months of 2017 (representing the third quarter of Liontrust's financial year), it gained £495m in net UK retail inflows – that was its highest quarterly level since before the 2007 financial crisis. That’s equivalent to an annualised organic growth rate of almost a quarter. Coupled with market gains of £345m during the quarter and £77m in multi-asset and institutional net inflows, that took total assets under management to £10.6bn. That’s up from £6bn at the same point in the previous year. Around £2.5bn of that increase came via its acquisition of Alliance Trust Investments, but organic growth is impressive, nonetheless.

While Liontrust’s retail business offers higher margins than its institutional asset management, mandates for the former are typically short term and so can be more susceptible to fluctuations in market sentiment. That makes its acquisition of Alliance Trust last year encouraging. That business not only has more exposure to institutional clients, but also a team specialising in "sustainable" investment – an area of growing interest for retail and institutional investors. That business is already making big gains. During the last quarter of 2017, it had almost £3bn in assets under management, up from £2.5bn at the time of the acquisition in April 2017.

Following the addition of the Liontrust sustainable investment team, the asset manager invests across eight strategies. Almost half its assets are investing in its Economic Advantage strategy, which usually backs companies judged to have the ability to maintain a higher-than-average level of profitability for longer than expected, typically by having intellectual property, strong distribution channels and significant recurring business. Liontrust has a solid investment pedigree, with 13 out of its 17 funds with a track record of five years or more ranked in the first or second quartile of their respective sectors on a five-year basis.

LIONTRUST ASSET MANAGEMENT (LIO)  
ORD PRICE:540pMARKET VALUE:£267m
TOUCH:534-556p12-MONTH HIGH:560pLOW: 375p
FW DIVIDEND YIELD:4.4%FW PE RATIO:12
NET ASSET VALUE:88p*NET CASH:

£22.6m

Year to 31 MarTurnover (£m)Pre-tax profit (£m)**Earnings per share (p)**Dividend per share (p)
201536.812.120.88
201644.914.525.512
201751.517.229.615
2018**75.625.640.520
2019**86.428.244.224
% change+14+10+9+20
Normal market size:1,000   
Market makers:    
Beta:0.51   
*Includes intangible assets of £24.3m, or 49p a share
**Numis Securities forecasts, adjusted PTP and EPS figures