Record faced known headwinds in FY19 from AUME outflows and a change in mix towards mandates with lower management fees but the potential to earn performance fees. In the event the outcome was better than we expected, reflecting slightly higher than anticipated management fees and cost control. Encouragingly, performance fees offset the contraction in management fees. Prospectively, Record continues to focus on client service and product innovation and this, together with the potential for further performance fee earnings, could provide the basis for further positive surprises.
Record’s FY19 revenues were modestly ahead of our expectation at £25m (+5%) giving PBT of £8.0m (+9%) compared with our £7.5m estimate. Diluted EPS of 3.25p were up 9% and the ordinary dividend of 2.30p was unchanged, while a special dividend of 0.69p gave a total of 2.99p. AUME of $57.3bn had already been reported and this was down 8% in US dollar or 1% in sterling terms with the main driver being outflows in passive hedging. Performance fees (already reported) offset the lower AUME and adjustment to management fee rates. The balance sheet remains strong with a capital cushion of £13.5m above the regulatory requirement supporting client confidence and providing headroom for working capital and investment.
Global geopolitical uncertainties continue to provide a favourable background for Record’s discussions with clients and potential clients and the group reports this is generating good levels of interest across products and geographies. The group’s strategy is to counter downward pressure on fee margins by continually enhancing existing products and through innovation, to improve client experience and developing and retaining staff in support of this. Our EPS estimate for the current year has been increased by 5%. Our estimates exclude potential AUME inflows (or outflows) and uncrystallised performance fees.
Record shares have seen a strong bounce following release of the full year figures (up more than 15%) but even so, when compared with a group of UK asset managers, the stock still trades on below average P/E and EV/EBITDA ratios (see page 7). The yield based on ordinary dividend is above average at 6.8%.