Gordon Stein, CFO of CleanTech Lithium, explains why CTL acquired the 23 Laguna Verde licenses. Watch the video here.
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FUM rose by 4.3% in Q2-FY24 from £16.9bn on 30 Sep 23 to £17.6bn on 31 Dec 23. This is on track to meet our end-FY24 (30 Jun 24) FUM target of £18.4bn (+9% y-o-y growth). Investment performance was strong, contributing £821m to FUM or +4.9% of opening FUM. Net flows remained subdued at -£98m (Q1: -£70m).
We remind readers that in Oct 23, BM announced a programme to reduce costs by around £4m per year, with one-off FY24 restructuring costs of up to £3.0m. This followed extensive technology and digitalisation investment over the last few years, enabling the group to manage the same or even higher business volumes with a reduced workforce. BM has now confirmed that the one-off restructuring cost is in line with the £3m estimate, and that some cost savings will be seen in FY24. As such, we reduce our FY24 cost estimate and increase our profit estimate as per the table below.
With net flows slightly weaker than forecast, but costs also lower, our fundamental valuation remains 3,050p per share. We also see BM’s PER of 16.5 as too low.
Link to report: https://www.equitydevelopment.co.uk/research/fum-up-4.3-in-quarter-profit-forecast-upgraded-a-touch
Brooks Macdonald has announced it intends to reduce staff complement by 55, around 10% of its workforce of just over 500. It expects to save £4m of costs per year from the changes, but it will incur restructuring costs of up to £3.0m, to be recognised in the current FY24.
We update our forecasts and valuation as a result of these changes, primarily:
- Adding ‘one-off’ restructuring charges of £3m to FY24 which reduces statutory profits but not ‘underlying’ profit.
- Reducing staff costs from FY25 onwards, by around £4m per year.
While these adjustments offset each other to a degree, the increase in outer-year profits is the dominant driver of valuation and we increase our fundamental valuation from 3,000p per share to 3,050p per share (71% above the current share price). We also maintain our view that the ‘de-rating’ of investment/wealth managers, especially Brooks Macdonald, has been overdone.
Link to research note & audio summary here:
https://www.equitydevelopment.co.uk/research/tech-investments-pave-way-for-staff-cuts-margin-upside
What does an acceptable bid here looks like?
Using the same EV/ PBT metric as 7IM (only data point I have) then £640m would be the total value. Finger in the air says that’s north of £30 a share!
Given £28 was the peak you’d have to be around that level?
All this said of course markets and the macro environment has changed (but 7IM deal was a month or so ago)
Possible bid interest looms and they want to defend! How about shareholder interest?
The trouble with ED is they are keep trying to justify why stocks they report on are doing so badly rather than concentrating on ones that are doing well. This is mainly because they get a fee. The particular problem here seems to be its hard to be that its hard to disguise from clients that their money could be doing better elsewhere. Apart from that it is really infuriating the way directors reward themselves with ludicrously generous share options for their lack lustre performance. As mentioned before their seemingly only gifted investor left the company a while back . You need to look after the good staff and sack the hangers on, fairly obvious who they are.
New report & audio summary here: https://www.equitydevelopment.co.uk/research/well-flagged-sluggish-quarter-but-price-fall-looks-over-done
FUM increased marginally over Q1 of FY24 from £16.85bn on 30 Jun 23 to £16.86bn on 30 Sep 23. As flagged in the FY23 results release of 14th Sep 23, net flows were slightly negative for the quarter at -£70m, although BM has indicated it expects positive flows for the whole of FY24.
It’s important to keep this small negative quarterly net flow number in context: it follows nine consecutive quarters of positive flows (achieved despite difficult market conditions) and a period where BM recorded a higher organic growth rate than peers for 6 out of 8 quarters.
We leave our forecasts and our fundamental valuation unchanged at 3,000p per share which, following the recent share price fall of BM (as well as the sector more generally), is now 89% above the current share price.
It is also worth zooming out to look at sector valuations in light of recent falls. Since the end of the bull market at the end of 2021, investment/wealth managers and platforms have ‘de-rated’ significantly with the median PER of a tracked peer group declining 54% from 27.6 to 12.6.
While valuations may well have ‘over-run’ to a degree at the end of the bull market, we certainly see the current median PER of 12.6 as very low (noting that this has dropped 25% in just one month from 17.0 when we published our most recent note on 14th September 2023).
I’d sold and now back in at a price below my original buy
7IM was recently sold for £255m PBT of £9m to £11m (not fully known). I must be missing something but BM is making £30m PBT at the same valuation
Hopefully PE come and buy this
Thanks for posting the presentation. Reminds me why I got out. Anyone who starts a presentation with a load of excuses for a poor performance doesnt fill me with confidence to want to re-engage even at this price. Consolidation is probably the best and only hope. On top of that they cant stop rewarding themselves for this poor performance. Will have another peak after the AGM where the sp will no doubt go down further.
Brooks Macdonald Group plc, the AIM-listed investment management group, conducted an online presentation for investors following the release of their Full Year results to 30 June 2023.
Andrew Shepherd, CEO and Andrea Montague, CFO took investors through their continuing strategic progress underlined by strong financial performance, despite challenging market conditions. Highlights of the year included positive net flows, an increased dividend and two completed acquisitions. Management also updated investors on the progress of their growth strategy, and answered a range of questions from viewers.
The full video has been divided into chapters as below:
0:00:00 Beginning & Agenda
0:00:19 Highlights of the Financial Year (CEO, Andrew Shepherd)
0:04:00 Financial Results (CFO, Andrea Montague)
0:11:06 Update on strategy delivery
0:26:46 FY guidance & looking ahead
0:29:06 Questions & Answers
See video here: https://www.equitydevelopment.co.uk/research/investor-presentation-september-2023-fy-results-presentation
FUM closed FY23 (30 Jun 23) on £16.8bn, 7.5% up y-o-y (30 Jun 22: £15.7bn). This was the second-highest growth rate among adviser-channel-focused wealth management peers. Net flows totalled +£817m (FY22: +£785m), investment performance added +£363m, 2.3% of opening FUM, above the benchmark MSCI PIMFA balanced index which returned 1.6%. BM has flagged a healthy pipeline for FY24, although investor sentiment is still subdued.
We forecast FUM, revenue and underlying PBT growth of 10%, 2%, and 3% respectively for FY24 (down slightly from our previous forecasts) with BM expecting net flows to be muted but positive in FY24, while it continues to target organic net flows of 8-10% p.a. of FUM over the medium term (it has been attracting assets faster than competitors for some time now, evidence of a competitive, if not superior offering).
We remind readers that BM is in a huge market: c£1.2trn of UK household investable wealth is administered by advisory businesses. This market is subject to significant tailwinds, and advisers are increasingly outsourcing investment management to companies such as BM. BM also has a huge opportunity to grow its international business in the Channel Islands and Isle of Man.
Our fundamental valuation reduces from 3,100p to 3,000p per share, still 55% above the current share price. We also see potential for a sector re-rating (median PE of 17 versus 30 in late-2021) and for BM to command a premium rating given its outperformance compared to peers.
Link to full note: https://www.equitydevelopment.co.uk/research/revenue-profit-beat-forecast-but-outlook-cautious
Brooks Macdonald Group plc, the AIM-listed investment management group, will be conducting an online presentation for investors following the release of their Full Year results.
The event will take place at 11.00am on Friday 15th September.
Andrew Shepherd, CEO and Andrea Montague, CFO will be hosting the presentation and answering questions submitted by investors. This is open to all existing and potential shareholders, and registration is free.
You can sign up to register here: https://www.equitydevelopment.co.uk/news-and-events/bm-fy23-investor-presentation-15sept2023
This industry always consolidates and this is a key target
Ken Wotton from Gresham has this in at least two of his funds and has expressed just how undervalued it is. The last company with which he expressed the same view, Medica, has just been bought out at a reasonable premium to recent absurd values
Two themes jump out at us at the close of FY22 (to 30 Jun 22). First, in the first full FY of CEO Andrew Shepherd’s tenure it has been a year of strategic strengthening, characterised by a return to consistent net inflows, following the ‘restructuring’ years of FY20 and FY21, which suffered net outflows. Most impressive now are the net inflows in Q3 and Q4, periods of sharp market falls, which can coincide with net outflows for investment managers.
Second, in absolute terms, investment performance saw gains in Q1 and Q2 (+£227m & +£317m), and sharp declines in Q3 and Q4 (-£850m & -£1,271m) as markets fell.
Our fundamental value reduces from 3,200p per share to 2,900p (also impacted by a slight increase in the discount rate used in our DCF model due to the increase in the 10yr gilt yield). However, with the recent share price fall to 2,160p it stands at a discount to our fundamental value of 34%. With such a strong franchise, evidenced by consistent net inflows in turbulent markets, we think the medium to long term prospects of Brooks Macdonald remain very strong and see potential for a re-rating.
https://www.equitydevelopment.co.uk/research/net-inflows-strengthen-again-but-market-falls-reduce-fum
#BRK We initiate today on Brooks Macdonald. Prospects for revenue and profitability growth look encouraging as we examine a number of key factors including:
Management's ambitious organic and acquisitive growth plans.
BM is operating in a huge market with substantial medium-to-long-term tailwinds.
It has a track record of delivering superior investment returns, which is one of the most important factors used by financial advisers when selecting an investment manager.
FUM growth has been solid in recent years (12% CAGR over 4-5 years), fueled mainly by investment performance and attractive-looking acquisitions, with quarterly flows accelerating sharply over the last 18 months, and expected to contribute more to FUM growth in the future.
It is in the final stages of completing a multi-year re-engineering of operational processes and technology. Benefits are already being realised but a platform for scalability has been created, with the potential to increase profit margins as the business grows.
Funds under management (FUM) totalled £17.3bn on 31 Dec 21 and in its last full financial year (FY21 to 30 Jun 21) BM’s revenue was £118m (up 8.8% on FY20: £109m) and underlying PBT was £30.6m (up 32.5% on FY20: £23.1), which is evidence of operational leverage kicking in.
Based on its growth ambitions (reaching £26-£27bn FUM in the next 5-6 years, excluding growth from acquisitions) and the potential for further operational leverage, our fundamental DCF valuation is 3,250p per share, 49% above the current price (although this gap has widened with recent equity market falls). In addition, BM’s PER of 17.4 is 30% below the sector median of 24.7.
https://www.equitydevelopment.co.uk/research/ambitious-growth-strategy-builds-on-30-year-track-record
Have to say at around £27 I see profit taking or top slicing as a reasonable case. I note the recent new branch openings at BM which will involve a ramp up of costs and thus pressure on margins in the short term . I note ( per my previous post! ) that for 2022 Peel Hunt make Rathbones top sector pick lauding the recent acquisition. Whilst I have not looked closely at this myself ( too much in the sector already ) on fundamentals you could argue it makes sense
Once again Martinv, found your observations of great interest. Will be staying invested on Brooks, assume you will also, despite some doubts as to future events.
Yes you are correct just pumped up by IC in a report copied mostly from similar comments from Peel Hunt ( brokers to BM ). Odd to note that BM has out performed Rathbones by over 50% in share price terms in the last 3 years. Latter looks good value and suffered from the same over paying for acquisitions which was the domain of BM. Still do not see where BM goes from here. You might want to note the stream of director share sales which seem to be becoming a regular feature. Without further culling of the huge finance and compliance teams I can see margins contracting again and even the CEO says staff costs will rise significantly next year. Odd the latter does not deem a mention from IC pump.
Think am correct sp now at all time high.
Thank you, helpful and very interesting answer.
AS is a safe pair of hands after the disastrous regime of CC. I think it is key that a lot of the shares are in a few hands, may decide the destiny of the company. Suggest a new strategy will be needed soon as the current relief rally seems to have played out now. The business is too small to play in the pool where it wants to be so a takeover would be most likely outcome. Investec is looking to grow so maybe one interested. Firm has lost a lot of its good people and if it remains independent needs to recruit the right people which will not come cheap.
Brooks sp keeps on climbing, still no interest here !
Still no interest in Brooks !
The market seems impressed with the appointment of Mr shepherd. Company in good hands and moving firmly in the right direction.
No one seems interested in chat about Brooks. Have held at a loss for many months. now seems my belief and patience are being rewarded.