The preliminary results announced today by WH Ireland (“WHI”), for the year to 30 November 2015, show strong growth of 40% in headline earnings per share, resulting from useful, but more modest, increases in both absolute numbers and market share for AUM and corporate clients, allied to effective cost control.
These have been achieved despite the travails of the SmallCap sector and, in particular, the AIM market, where WHI is one of the leading corporate brokers and NomAds with a 9% market share. Markets hate uncertainty and the UK-oriented Mid- and Small-Caps have been plagued with it: the General Election, following on from the Scottish referendum and continuing thanks to Syria and Cameron’s failure to put the EU referendum result beyond doubt. WHI’s pre-exceptional operating profit of £1.1m looks even better in contrast to the multi-£m losses by rivals Arden and Panmure Gordon, of which we have recently learned, and Fiske’s loss of over 50% of revenue; Daniel Stewart’s losses remain unquantified.
In a year that saw a 50 (4.5%) fall in the number of companies listed on AIM, WHI increased its corporate client list by 5 (5.4%). WHI also increased Assets under Management (AUM) by 2% while the All-Share Index declined by 3%.
The rise in AUM seems gradual because it has not been indiscriminate – the more valuable Discretionary Funds have grown strongly by over 50% in two years to over 30% of the total, while Advisory and Execution-Only AUM has shrunk as WHI has exited from third party administration, CFDs, Spread Betting and its relationship with the Colwyn Bay Branch over which it had limited control. Each of these was low margin and seemed not to justify the associated compliance burden. It has also, in common with several other brokers, ceased to offer advisory dealing services to new clients.
In consequence, management fee income rose 32% to £6.5m increasing group recurring revenue to £11.4m, so it now comprises more than one-third of the total.
The Chairman has confirmed that the strength of the local property market in Manchester has led WHI to consider realising the value of the freehold of their office there (last valued in 2013 at £4.75m, so presumably currently worth more). The share placing last week was to bolster the surplus of their capital over regulatory requirements, restoring their flexibility and ability to invest for the longer term: a sale would, after tax and repaying the £1.1m remaining of the mortgage, boost group cash to around £12m, providing ample scope for long-term investment.
Updating our sum-of-the-parts valuation: 4% for discretionary AUM, 2% for advisory and 0.5% for execution-only, plus surplus cash and the equity in the Manchester Office property (at 2013 valuation), comes to £57m or 223p/share, even without attributing any value to the corporate broking division. A pessimistic valuation, using 3% and 1.5% in a non-take-over situation and applying a 10% conglomerate discount, still gives 158p, two-thirds higher than the current price.