We have revised our fee income and profit forecasts to reflect recent momentum behind growth in assets under discretionary/advisory management (AUM) which hit a new peak of £5.06bn at the end of 2016 (FY16: £4.8bn). A 12% increase over the quarter puts Impax well on track to achieve our existing £5.4bn end September 2017 AUM forecast.
We have increased that target by £100m, but adjusted for an expected shift in AUM weighting towards lower margin listed equity funds. That still sees operating profit increase to £6.6m this year, on top line revenues marginally lower. Similar adjustments to FY18 forecasts assume conservative y-o-y AUM growth.
AUM is a key valuation metric and recent periods have seen impressive growth from £3.1bn (Q1 16) to £5.1bn (Q1 17). We expect further progress out to the end of FY18, but would still be comfortable with some volatility in a net measure i.e. which includes client withdrawals.
The group has two older private equity funds which are effectively in wind-down, where profitable exits/client distributions would be regarded as positive. Conversely, new investment in a recently launched third fund may exceed our projections. In each case the assumptions which underpin our forecasts are deliberately conservative, taking into account withdrawals and their potential impact on fee income.
The group reported record inflows into its listed equity funds during the quarter, driven by Continental European and North American clients. This confirms that the momentum achieved in the second half of FY16 has been maintained this year; the table overleaf confirms particularly strong net inflows into its equity funds. Our full year AUM target assumes a further 9.4% growth over the final three quarters which we don’t regard as particularly aggressive. That projection puts the shares on an 11.7x FY17 EV/NOPAT multiple, and EV/AUM (Q1) of 1.2%, backed by a well-covered 4.1% yield.