Impax reported outstanding FY17 results and positive start to FY18. Momentum is being driven by organic growth and the proposed combination with US-based Pax World Management LLC, set to complete in Q1 2018. The latter only indirectly affected the FY17 result but is included in our proforma FY18e, and we will update our forecasts, and consider the sensitivities for the enlarged business after the transaction closes. The underlying outlook remains compelling: record 61% growth in assets under management or advice (AUM) in FY17 included c £2.1bn of net inflows and £0.65bn from fund performance. Total year-end AUM was £7.3bn (FY16: £4.5bn), or £10.3bn including Pax.
Strong growth in fee income and operating margins - revenue and adjusted operating profit (excluding non-recurring items) up 55% and 121% respectively - followed further outperformance by Impax’s principal listed equity strategies (each has outperformed the global benchmark over one, three and five years) and a positive start by the new renewable energy private equity fund. Net inflows well spread by geographic source, confirm that Impax’s direct marketing and distribution partners have traction in key markets across the USA and Europe.
We set out the potential benefits of the Pax purchase in our 28 September 2017 update. The deal delivers strategic growth on terms that should enhance EPS and dividend cover. Impax will pay up to US$90m via an initial US$52.5m and the balance in 2021 subject to performance. The operations are complementary, with aligned strategies and business cultures, and over a decade of successful partnership.
We expect the addition of Pax to enhance EPS from FY19. Impax’s recent share price performance means that the share based consideration should be priced above the 110p we’d assumed, so would be less dilutive. Impax’s valuation still appears undemanding relative to prospects; well supported by AUM growth, fee income and cash generation; underpinned by further potential from a broadened offer/ distribution and cross sale opportunities. A proposed 2.2p final dividend is above forecast.