Record’s assets under management equivalent (AUME) fell as expected to $53.3bn at 30 September 2015 from $55.4bn at 31 March 2015, predominantly as a result of a previously announced reduction in size of a bespoke currency for return mandate. Record’s core passive hedging mandates continued to experienced good inflows. Underlying profits in H116 increased by 9% y-o-y, partly boosted by revenues from the bespoke mandate. Record continues to experience a high level of client interest in its hedging strategies, and the likely imminent rise in US interest rates could transform this interest to new mandates.
Record’s passive mandates increased by $1.8bn in H116, annualised growth of almost 9%, as existing clients increased the size of their mandates with Record. Passive strategies are now the largest fee-earning element of Record’s business (41% of revenue in H116). Passive mandates are considered to be a more stable source of revenue than Record’s other strategies as they are less sensitive to investor sentiment. In H116 fees from passive mandates covered 64% of administrative expenses.
Record continues its active dialogue with potential clients interested in its various hedging and currency for return strategies. This has been intensified by the increase in currency volatility over the last year, while the likely imminent rise in US interest rates could further intensify discussions. If the US rate rise causes further US dollar strength, Record believes it could encourage some of its US prospects in particular to award it hedging mandates.
Record is trading at a discount on both P/E and EV/EBITDA multiples to US and UK asset managers and offers a near 6% dividend yield. Its dividend is covered by earnings and it has more than £30m of cash and equivalents on its balance sheet, equivalent to 52% of its current market capitalisation. Record’s shares appear good value compared to other asset managers. We have not included the possible new business arising from a rise in US interest rates in our forecasts, but if it materialises it would further support Record’s favourable valuation.