Tatton passed the March 2020 market-crash stress-test with flying colours. Financial advisers continued to trust it with their clients’ money – net fund inflows were £86m in March (just under the FY20 average of £94m pm) – at a time when many funds saw record outflows. Over FY20 Tatton recorded £1.1bn of inflows, and despite the market bottom nearly coinciding with the 31-Mar year-end, AUM closed 10% above FY19 on £6.7bn. Revenue grew 22% to £21.4m; adjusted operating profit was up 24% to £9.1m; PAT jumped 72% from £4.9m to £8.4m; and full-year dividend increased 14% from 8.4p to 9.6p, a yield of 3.3%. Tatton remains debt-free with £12.8m of net cash.
Client inflows have continued post year-end which, in combination with the recovery in markets, has seen AUM grow 10% in two months to £7.4bn on 31 May 2020. Tatton’s longer-term growth trajectory appears firmly intact, however further market volatility could cause significant fluctuations in AUM levels over the shorter-term.
Market tailwinds coupled with a proven market leading proposition should see continued top-line growth. Money managed by IFAs via platforms is growing rapidly – up from £311bn1 in 2017 to £530bn2 by Sep 2019. In particular, they are flocking to discretionary fund management (DFM) platforms (Tatton’s model) – with assets up from £5bn in 20111 to £48bn3 in mid-2019. Tatton has proven its ability to not only win new IFA clients, but to gain a larger share of their AUM over time.
Operational leverage should see margins improve further as the business scales. There is valuation upside if Tatton continues to deliver. Its PER of 22.5 is below high performing asset managers - and Tatton is a 1st quartile performer on most metrics: AUM inflows, revenue growth, operating margin, EPS growth and ROE. It’s current 295p price is roughly in line with our discounted cash flow valuation of 300p.