Tatton Asset Management Trading update – Zeus Comments

What’s new

The maiden trading update from Tatton Asset Management Plc (LON:TAM) for the six-month period to 30 September 2017 ahead of its interims on 5 December, reveals.

* 15.3% rise in Funds under Management to £4.44 bn (March 2017: £3.85 bn);
* Fund inflows continue at a run-rate of over £80 million per month;
* 1.1% rise in membership of Paradigm Partners to 356 (March 2017: 352)

* 5.0% rise in membership of Paradigm Mortgage Services to 1,143.

The outlook positively observes: “This growth is further evidence of the increasing demand for a low cost DFM service to the mass affluent market place served by the IFA sector, which the Group is ideally placed to capitalise on.”

Zeus view

This is an encouraging trading update. Key points are:

* Tatton’s AuM is 3.9% ahead of our expectation of £4,273m for 30 September 2017 and 2.4% of the average AuM for the year to March 2018, which were forecast in our initiation note dated 12 September 2017 and assume WMA index of 4,121 (currently 2.0% higher at 4,202);
* The continuation of fund inflows of “over £80m a month” is ahead of our forecast which assumes a rise of £283m (i.e. average £47m a month for 2H) to £4,723m by 31 March 2018.
* Membership of Paradigm Partners and Paradigm Mortgage Services in line with our full year forecasts which anticipate 3% and 10% growth respectively.
* While the statement made no comment on profitability or the Group’s balance sheet, we note that management has strong control over costs, cash of over £10m (18p per share) and no debt.
Valuation

At 190p, c. 9% of Tatton’s share price is surplus capital and Tatton shares are trading on 3.4% prospective dividend yield and on 20.5x FY(Mar)18e adj EPS.

Looking forward to the following year we see prospects for over 20% EPS and DPS growth.

With £4.4 billion AuM on 12 May 2017, Tatton’s enterprise value is 2.3% of the AuM.

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