Impax Asset Management - overvalued?

Tuesday, Jul 31 2018 by

Impax Asset Management (LON:IPX) is widely followed on the Small Cap Valued Report, especially by Graham Neary. The share price has risen sharply recently and I have come to the conclusion it is now significantly over valued.

I calculate market cap as a percentage of assets under management (Graham's preferred measure I think) to be 3.1%. I don't think it has ever been this high before and the closest I can see it has ever been was back in early 2014 with 2.8% on a share price in the mid-50s. Following this the share price was under 50p in Autumn 2016 with a ratio of 1.4%. I accept that scale means a higher ratio is justified, but I don't think to this extent and they have also been much cheaper on this basis recently.

Furthermore TNAV is much weaker than a year ago even before the payment of a special dividend and I think this will constrain future distributions and growth by acquisition. And even if they could fund further takeovers without significant dilution I don't think there is another PAX and so the positive effect from this must be considered a one-off.

Finally, although inflows remain impressive in their non-PAX funds, both these and investment returns have faltered somewhat recently especially when including PAX. There remains (IMHO) a risk of a 40%+ correction in US stocks which would badly affect both.

Consequently I have now sold almost all of my holding. I think they are well run in an attractive sector and am hoping to buy back much more cheaply in 1-3 years time.

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Impax Asset Management Group plc is an investment company offering listed and private equity strategies primarily to institutional clients. The Company has six listed equity strategies: Specialists, Leaders, Water, Asia-Pacific, Global Opportunities, and Food and Agriculture. Its real assets business comprises renewable power generation and sustainable property private equity funds. The Company has investments sectors, such as energy efficiency, which includes power network and buildings; alternative energy, which include solar, wind and biofuels; water infrastructure/technologies, which include treatment and utilities; pollution control, which include pollution control solutions, and testing and gas sensing; food, agriculture and forestry, which include logistics and sustainable forestry; waste management and technologies, which include tech equipment and hazardous, and environmental support services, which include consultancies and diversified environmental. more »

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8 Posts on this Thread show/hide all

Wimbledonsprinter 31st Jul '18 1 of 8

I tend to agree with you. But I have some of these shares in a buy and hold strategy for my children - so I am not thinking of selling imminently. Two comments though. One I am not sure how relevant the P/AUM metric is. There is so much drop through to the bottom line in the asset management business through increasing assets (at least if the manager is not diversying into new strategies). However, even on a P/E basis, I think that room for growth of AUM is not unlimited for Impax (apart from a couple of the lower margin PAX products). At some point Impax is going to hit capacity constraints in its most lucrative products.

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Edward John Canham 31st Jul '18 2 of 8

I'm mostly in agreement, however, my logic is more basic. I cannot square a forward PER of 17+ for a fund manager when everyone is talking about an imminent market correction. As can be seen from the last quarter inflows were anemic compared to market performance, if the latter goes the valuation looks very toppy.


Edit: As can be seen above the market does not agree with me - but it's the 30%+ rise in July which is making this seem overvalued

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Wimbledonsprinter 1st Aug '18 3 of 8

In reply to post #386964

Nearly all Impax’s revenues are management fees (not performance fees) therefore its business model is more robust than some asser managers. I think the performance of the funds are critical for Impax at the moment. Following the PAX acquisition, I presume investors’ concern would have been that management’s focus was drifting away from performance towards asset gathering. Strong outperformance post-acquisition will reassure investors. For asset managers performance is always key (even without performance fees) as it helps AUM growth and limits management fee compression.

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andrea34l 1st Aug '18 4 of 8

I too wonder what is driving the price up and up. I have very happily watched them rise 30% in only two months, but I do consider any correction in the markets would watch them quickly drop again.

For the mo, I'll watched them, but I've put a stop loss of only 10% on them now.

In the past I read an investment philosophy that stated that once one had made a 30% gain in any stock one should move on. Well, the price has gone up 30% in about 6-7 weeks, which seems a little ridiculous. This philosophy is of course contrary to one which states to ride the risers and sell the fallers.

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JohnEustace 1st Aug '18 5 of 8

In reply to post #387274

If I followed the "sell when you're up 30%" rule I would have sold out of Burford at £1.60 three years ago, which would not have been a good thing. Most of my gains have come from letting the few real stars run.
But.... I'm struggling to justify the recent Impax Asset Management (LON:IPX) rise as well. I imagine a few of us have it on a tight stop loss, either automatic or manual.

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LeoInvestorUK 22nd Nov '18 6 of 8

An update:

The day I wrote the article (July 31st) the share price closed at 271p and then peaked at 278p a few days later before falling back. The share price has since been volatile but (so far) it has never regained these levels.

Inflows for the core business to end of September were inline with the previous two quarters - not as high as those seen in 2017, but still very good at over 20% annualised. The PAX business continues to somewhat underperform.

At the time of writing we have seen some significant market falls with increased market volatility. At the current buy price of 202p I estimate the ratio of market capitalisation to assets under management to be 2.2%. Historically that has not been a bad entry point, but it has always been better to wait. A big question remains to what extent greater scale means a higher ratio is justified than historically.

I am holding off buying back for a ratio below 2% which I currently estimate equates to 190p. Even then I would be keeping my position size small until current US market volatility calms down or the ratio falls further to (what historically indicated) bargain territory of 1.8% and below.

Blog: LeoInvestorUK
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carmensfella 22nd Nov '18 7 of 8

Just to mention that Impax are presenting at Mello London next week

The full programme schedule is here

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Richard Goodwin 25th Nov '18 8 of 8

Sorry. Wrong thread

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