Record has maintained its commitment to improving service levels and introducing new products to meet client needs. In H120 this included a new strategy within the currency for return area and it is extending its derivative management capabilities to asset classes outside currency. These initiatives may not affect earnings significantly in the near term but are part of a process of innovation and investment that has helped to limit fee margin erosion and provide a stronger base for future client acquisition.
Assets under management equivalent (AUME) had already been reported and in US dollar terms were up 4.6% to $59.9bn in H120, mainly as a result of net inflows of $2bn. Average AUME in sterling terms was marginally down on H119 and after small mix and fee margin effects, management fees were down just 3%. There were no performance fees in the period (vs £1m in H119) so revenues were down nearly 10% to £11.4m. Costs were held broadly stable with lower variable compensation offsetting investment in IT and people to support client services and new products. This meant the decline in pre-tax profit from £4.0m in H119 to £3.2m essentially reflected the absence of an equivalent performance fee this year. Diluted EPS was 1.29p versus 1.61p and the interim dividend was maintained at 1.15p. The balance sheet remains strong with no debt and own cash of £17.7m.
The global backdrop, with continuing sources of geopolitical uncertainty, remains favourable for Record when meeting potential and existing clients. It sees an encouraging range of opportunities across its product range and geographies. The group’s track record and position as an independent currency manager allied with its dedication to improving and customising services for clients stand it in good stead to counter competitive pressures and grow the business over the longer term.
Our EPS estimate for the current year is increased by 6%, reflecting the slightly better than expected H1 outcome and higher AUME level. For FY21 these positive effects are neutralised by the recent strengthening in the sterling/US dollar rate. Compared with asset management peers, Record trades on a similar prospective P/E rating and offers a yield premium and the potential for a special dividend if performance fees are earned.