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Tatton Asset Management “trading well and remains financially strong” says Zeus Capital

What’s new: Tatton Asset Management plc (LON:TAM) results for the year to 31 March 2020, were as indicated by its 21 April update: in line with analysts’ forecasts”. Highlights are:

  •  22% rise in revenues to £21.4m (or £20.2m ex current year VAT refund)

–       27% rise in Tatton division revenue to £15.9m

–       10% rise in Paradigm division (Mortgage Services & Consultancy) to £5.5m

  • £1.13bn of net inflows for the 12 months, which is 18.6% of opening AUM    

­   Average net inflows £94m a month

­   IFA firms using Tatton increased 34% to 595 firms

  • On 31 March 2020 AUM was £6.65bn (9.6% rise over the year)   

­   On 21 February 2020 the AUM reached £7.76bn

­   From 21 February to 31 March WMA balanced index fell 12% to 3872

­   Market movements (including March 2020) reduced AUM by £0.7bn

§  Cash on 31 March 2020 was £12.8m

Outlook: During Covid-lockdown Tatton’s engagement with IFA clients fell from 30 meeting a week to below 10. Recently activity has recovered to 20 meetings a week. Tatton’s net inflows are expected to return to normal levels in H2. Paradigm Mortgage and Consulting revenues will be impacted by the Covid-lockdown, with revenue depressed between 10% and 25%.

Zeus view: Despite Covid-19,Tatton is trading well and remains financially strong.

Tatton‘s current AUM is £7.5bn, with the WMA Index at 4225 (n.b. 9.1% above 31 March 2020 level). Assuming flat markets and £0.9bn net inflows over the next 10 months, we expect Tatton’s AUM to reach £8.4bn by 31 March 2021 (i.e. average AUM of £7.5bn, which is a rise of 14% YoY on £6.6bn). 

With over 55% of Group revenues directly linked to AUM, we expect Group revenues to rise to £22.0m and operational gearing (70% marginal profit margin) resulting in adj PBT rising c £0.9m (i.e. 10% pa) to £10.0m.     

Valuation: At 295p, in our view, Tatton share price reflects its record of double-digit revenue and profit growth. Tatton is trading on fully diluted historic PER of 24.6x and 3.3% dividend yield; on our new 2021 forecasts which assume current market levels and £0.9bn of net inflows over the next 10 months, Tatton is trading on 22.5x PER and 3.45% dividend yield.

Tatton Asset Management has a strong balance sheet, substantial surplus net cash, and a cash generative business model, which enables it to pay dividends.  

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.