After three quarters with outflows in assets under management equivalent (AUME), Record reported a modest inflow in its first quarter ($0.3bn) and the number of clients also ticked up. Competitive pressures remain a feature but the group is countering this with its focus on innovation and service enhancement. The breadth of new business opportunities is encouraging. A combination of sterling weakness and mix changes has led us to revise estimates, with EPS increases of 9% and 8% for this year and next.
Record reported AUME of $58.3bn at the end of Q120 (30 June), an increase of 1.7% or 4.0% in dollar and sterling terms respectively in the quarter. Market-related movements were neutral, while FX and volatility targeting related moves added $0.7bn. The $0.3bn inflow mainly arose from the partial reversal of an earlier $1.1bn reduction when Record took a tactical profit on behalf of certain dynamically hedged mandates. The number of clients increased from 65 to 68, with the flow movements implying that the new mandates are relatively small. However, where these are new relationships or for funds, there is the scope for growth over time. There were no performance fees crystallised during the period and fee rates were broadly unchanged. For further details see overleaf.
The macro backdrop, with significant tail risks, continues to provide a favourable background for Record’s discussions with potential clients and it reports an encouraging range of new business opportunities diversified by geography and product. Our estimates exclude potential AUME inflows (or outflows) and do not include performance fees until crystallised. For FY19, performance fees of £2.3m were earned (9% of revenue or 0.5bp of average AUME compared with the 5bp average management fee rate). Weakness in sterling, together with the inflow reported and mix changes, have resulted in increases in our estimates with EPS up by 9% for FY20 and 8% for FY21.
The shares bounced following the full year figures, but have been stable subsequently and, following our forecast increases, the P/E and EV/EBITDA multiples for calendar 2019 (12.3x and 7.6x respectively) are clearly below the asset manager comparators that we show in Exhibit 3 (15.6x and 11.0x).