Record (REC:AIM) chief executive James Wood-Collins says the case for a special dividend will be weighed up at the end of the asset manager’s financial year after first half earnings hit expectations.
Underlying operating profit in the six months to 30 September declined 2% to £3.6m, a result slightly ahead of expectations according to broker Cenkos.
In a June 2016 full-year results presentation, Wood-Collins outlined a potentially more generous dividend policy was under consideration - even though Record yields around 4.9% based on payout forecasts at current market prices.
‘Today we are saying that over the last few years we have strengthened the balance sheet so clients can be reassured about the service we can provide,’ says Wood-Collins in an interview with Shares.
‘That strengthening process has reached a natural limit so we will be giving consideration to any excess of earnings per share over ordinary dividends - but we will do that on a full-year basis and subject to market conditions.’
CURRENCY SWINGS
A niche asset manager, Record runs ‘currency for return’ products as well as tailored ‘passive hedging’ foreign exchange services which mitigate currency swings in clients’ investment portfolios.
Interest in Record’s niche asset management product for institutional investors, driven by increased volatility in currencies during 2016, helped customer numbers increase from 58 to 61 in the first half of its financial year.
Assets under management equivalent (AUME), a measure of Record’s fee earning capacity, increased 4% to $55bn (£42.5bn at 30 September exchange rates).
| EARNINGS ESTIMATES | |||
| Record - Key metrics (£m) | |||
| 2016 | 2017e | 2018e | |
| Revenue | 20.9 | 22.3 | 22.6 |
| Adj. Profit Before Tax | 6.9 | 7.1 | 7.4 |
| Adj. EPS | 2.5p | 2.6p | 2.7p |
| Dividend | 1.7p | 1.7p | 1.7p |
| Source: Cenkos, 18 Nov 2016 (year-end 31 March) | |||
EXPERT VIEWS
Analysts at Cenkos say a larger decline in operating profit was expected at the half-year stage than the 2% dip actually delivered. Full year estimates have as a result been increased marginally.
That chimes with earlier reports in Shares, when we reported Cenkos in February 2016 estimated Record would deliver earnings per share (EPS) of just 2p in the year to 31 March 2017.
Today it is penciling in EPS of 2.6p.
‘Record has delivered another half year’s profits modestly ahead of our estimates resulting in another small increase in our full-year estimate,’ writes analyst Rae Malie at Cenkos.
‘Although each increment is small, in aggregate the impact is material over the course of the year to date. Having negotiated successfully the ending of the Swiss Franc peg and the EU-referendum, since the company’s period end there has also been the US election.
‘There are further elections to come in Europe over the coming months. Each event highlights again the currency risk being faced by clients and potential clients of Record which now offers a broader selection of products to fit the particular needs or views of those clients.
'We do not include future new business success in our estimates, but the environment for such business wins looks encouraging we believe.’
CFO URGES CAUTION
Record chief financial officer Steve Cullen cautioned investors should be careful when looking at the company’s profit-and-loss statement and balance sheet because of the way it accounts for non-controlling interests.
Non-controlling interests boosted income statement operating profit and balance sheet cash in the period, Cullen said.
It is better for shareholders to focus on underlying operating profit of £3.6m, rather than the £4.0m income statement number, as the key measure of Record’s performance.
Non-controlling interests represent around £4.2m of Record’s £39.3m total book value. Broker Cenkos says Record has £28.8m of cash, excluding non-controlling interests, equivalent to 13p per share.
Shares in Record trade 6.3% lower at 31.5p after a 26% gain in the month prior to the latest statement.
