An impressive first half saw total assets under discretionary and advisory management (AUM) hit a new £5.7bn peak at end March 2017. As that’s already above our existing full-year target with six months still to go, we have upgraded FY17e AUM to £6.0bn and £6.8bn by end FY18. We still see those as relatively conservative vs 27% first half growth i.e. c 5% net new inflows in H2, c 2% from investment performance, and reductions in scale of the group’s older private equity funds as they exit investments. We assume limited contribution from the latest PE renewable infrastructure fund in its initial funding phase, but anticipate another upgrade later in the year as fund raising is completed.
Growth in gross AUM, respectively 12.4% and 12.9% in each of the first two quarters reflects momentum behind key drivers for Impax’s listed investments. We interpret this as evidence of the group’s growing profile as a prime source of expertise in an area of increasing importance to global investors, and traction in key markets.
The first two quarters saw net inflows to listed equity funds equivalent to 8.3% and 9.3% across Q1 and Q2, and respectively +2.0% and +5.6% investment performance. The impact on fee income is reflected in our higher revenue and earnings forecasts. The upgrades may yet prove cautious, as for now we only include a minimal contribution from higher-margin private equity funds, pending announcements. Conversely, we have assumed exits from older PE funds near the end of their terms: these reduce AUM/fees short term, but are positive events that should benefit subsequent fund launches.
The AUM update didn’t detail the sources of £428m of net inflows to listed equity funds in Q2, but Impax previously reported growing receipts from Continental European and North American clients. Despite a strong recent run which puts the shares on a more demanding rating we see our FY17e AUM target as conservative as it assumes £0.27m of listed equity net inflows in H2 vs £0.78m in H1 and nothing from private equity. Indeed, given scope for continued AUM accumulation, strong fund performance in its chosen space and potential for high margin Private Equity growth to result in further upgrades, the valuation remains attractive vs short term prospects.