Another busy Thursday with a throng of results and updates as the New Year reporting season gets into full swing. Of interest to the Compound Income Scores Portfolio were trading updates from Jupiter Asset Management (JUP) and Hays Group (HAS) the international recruitment Company. While also of interest was a sponsored note from Hardman & Co. on Alliance Pharma (APH) - covering the background and benefits from their recent add on acquisitions which you can read or download from here if that is of any interest, or click below if you want to read more.
So as one would expect in a bull market Jupiter had a strong update with assets under management (AUM) rising by 24% in the year to £50.2bn (31 December 2016: £40.5bn). They also reported net inflows in the quarter of £0.6bn, resulting in a total £5.5bn of net inflows in the year to 31 December 2017 (2016: £1.0bn) or 13.6% growth with the rest coming from market movements. The other feature they highlighted was the on going successful international and asset class diversification strategy. This saw new fund launches in March (Global Emerging Markets Corporate Bond Fund), May (Emerging & Frontier Income Trust) and September (Global Emerging Markets Short Duration Bond Fund), the Global Levered Absolute Return Fund was launched in October, further developing thier Absolute Return offering and diversifying the client base for this strategy. They also expanded their geographic reach in the quarter, with flows from clients in Thailand and Latin America.
So seems like a good update to me although Mr market was probably looking for more as he has marked the shares down by about 2% this morning. They look reasonable value on 16 to 17x earnings depending on which year you take which comes with a near 5% yield, assuming they continue to deliver special dividends, which seems quite likely given they still had nearly £300m of cash at the interim stage. This leaves them on an Enterprise Value (Market Cap less cash in this case) of around £2.5bn which puts them on 5% of assets under management (AUM), which is quite a full figure. They do however make very decent returns on capital and margins, as it is largely a retail fund management business, which tends to be more profitable than more institutional businesses. By way of comparison the Miton Group (MGR) which the scores portfolio picked up this month trade on 12 to 13x and are only on 2% of AUM although they are smaller, less well diversified and less profitable. Technically they have been weak prior to this and in fact seem to have broken below their 50 day moving average which had previously acted as support. So maybe profit taking has set in on this one already as may be some larger investors are starting to shift more defensive in anticipation of tougher times ahead in markets?
Moving onto Hays Group who had Q2 trading update which showed a continuation of the trend of strong growth (16-17% Like for Like) from their overseas operations and a pretty flat picture in the UK (1% LFL) and permanent placements being stronger than temporaries. This meant strong overall growth of 13%, thanks to the excellent performance in the International businesses, which now represent 76% of Group net fees. Not much to add other than 13% rate of growth reported this quarter is stronger than the 7 to 8% growth that is currently in forecasts, so if it continues then there could be scope for some more upgrades to continue the trend that this one saw last year in that respect. This is probably why Mr Market was more favourable disposed towards these and marked them up by 3% or more this morning which also leaves it, like Jupiter on 16 to 17x albeit with a lower forecast yield of 2.7% or so a,though they have paid a special this year already. They have had a strong run into this update having recovered from a prior sell off and are now approaching their previous highs from the autumn. This may act as resistance as they look quite extended, but if they see upgrades then this could be a good momentum stock too given behavioural biases surrounding stocks close to their highs.