In its year-end trading update, Lighthouse confirmed that it expects to report EBITDA and profit before tax in line with board expectations. Revenue production per adviser and recurring revenue (over 50% of customer-derived revenue) have continued to increase. Our forecasts are unchanged with 2018 pre-tax profit and EPS expected to increase by 9.5% y-o-y and 8% y-o-y, respectively. Reflecting a strong balance sheet, the interim dividend was stepped up from 0.12p to 0.20p and we are assuming 0.60p for the full year. During the second half, Lighthouse announced a new affinity contract following the merger of two teaching unions (ATL and NUT) to form the National Education Union. While Lighthouse was already preferred supplier of financial advice to the ATL, the NUT added a further 336,000 members and the contract underlined the group’s strong position with affinity groups. A strategic agreement with Tavistock Investments was also reached, which will broaden the Luceo Asset Management product offering and help increase its scale. 

A more volatile market background could have some effect on individuals’ propensity to seek financial advice (both positive and negative), but the key longerterm drivers of demand growth remain in place: an ageing population, and increased choices and responsibility for pension accumulation and decumulation. Lighthouse appears well-placed to address this opportunity with a particular focus on developing business through its affinity relationships. 

Lighthouse shares are up by over 25% on a 12-month view, but have corrected by a similar amount since their mid-2018 high. On unchanged estimates, our DCF valuation also remains unchanged at 44p, suggesting substantial potential upside from the current price.