First half results from Lighthouse indicate that it is on track to meet market expectations for the full year, while the strength of its business providing financial advice to members of affinity partners was underlined by its success in renewing all eight of the contracts that have come up for renewal this year. This now accounts for 19% of group revenue and there is good scope to increase penetration in this area. Part of the c £5m of cash the group has available for investment is likely to be allocated here.
H118 results showed total revenue up 5% but, excluding the legacy Communities (Network) division, the increase was 12%. Revenues from the higher-margin affinity business increased 20% and the proportion of customer-derived recurring revenue has increased to more than 50% of the total. Costs were held flat and reduced before share based payments, allowing pre-tax profit and diluted EPS to increase by 12% and 9% respectively. Reflecting the strong balance sheet with no debt, cash of £9.6m and a positive outlook, the interim dividend was increased by 67% to 0.20p.
The market background for a UK financial advice firm such as Lighthouse is favourable given an ageing population, and increased choices and responsibility for pension accumulation and decumulation. Lighthouse is differentiated by its wellestablished affinity business, and investment in additional staff to develop this opportunity more rapidly could provide attractive returns in due course. Otherwise, Luceo Asset Management should continue to build towards a profitable scale and other in-house solutions for clients may be added where appropriate opportunities are seen. In the near term, Lighthouse reports that the second half has started well, continuing the trends seen in the first six months.
Our estimates are only marginally changed with earnings per share marginally increased. With limited changes in estimates, our DCF valuation is unchanged at c 44p, more than 30% above the current share price.