SIF Folio: Super Profitability At Tatton Asset Management

8th Jul '20 by Roland Head

13 comments 3930 reads

My stock screen store cupboard is almost bare once again this week. But there is one new contender which could fit into my rules-based SIF portfolio.

AIM-listed Tatton Asset Management (LON:TAM) describes itself as “powering the UK’s leading financial advisers”. What this firm does is to provide discretionary fund management, a range of IFA support services and mortgage provision for IFAs. In short, it’s a complete ‘back end’ for financial advisers.

Graham looked at Tatton’s 2018 results here and a later trading statement here, where he flagged up strong growth.

The firm has just published an audited set of results for the year ending 31 March 2020, so now seems an ideal time to take a fresh look at this stock, which has performed well in the interim.

So far, so good

Back in 2018, Graham commented that as Tatton only floated in 2017, he feared a post-IPO mishap. It’s a common phenomenon, but so far these fears have proved unfounded:

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One reason for the continued strong growth may be the presence of founder-management. TAM is led by founder and chief executive Paul Hogarth, who floated the company in 2017. Despite selling a chunk of shares in the IPO, he retains an 18.9% holding and is the firm’s largest shareholder.

We can see this information with Stockopedia’s excellent new(ish) major shareholder feature (on the Accounts menu):

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The other major shareholders are all well-known institutional names. I’m encouraged to see this £160m firm already has a strong following in the City. This impression is reinforced by the make-up of the board. Tatton’s chairman, Roger Cornick, was previously chairman of (then) FTSE 100 firm Aberdeen Asset Management.

Is there space for Tatton Asset Management in the SIF Folio? At first glance, the portfolio already appears to have a big allocation to financials:

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This allocation to the financial sector currently contains three stocks. The first two of these are pawnbroker H&T Group and German commercial property group Sirius Real Estate. I’m confident there’s no overlap with these.

However, the third of my existing financials is business broker K3 Capital. This is a recent addition that bears some similarities to TAM, with high margins…

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Michael Ferguson

8th Jul '20

Bail out of BooHoo or hold ??

The Phoenix

Great write up Roland I like Tatton Asset Management (LON:TAM) also has flagged up on my screen all be it seems close to two year high I would want to see it either get through £3 before entering or a bit of a pull back to the £2.50 area before entering.

HHR

Hello Roland,

I always enjoy your SIF articles as they bring to life many of the qualities I aspire to in my investing. Your professionalism, self discipline and systematic approach are all things I think I need to work on.

I am essentially a growth investor and I am willing to pay a very high price if I think sufficient quality and potential are on offer. As such it is rare for SIF and me to be watching the same candidate shares.

However in the case of tam I am a big fan. I will probably buy this when it breaks above £3. I think you have covered most of the good points but in addition I would emphasize the cost advantage of tam vs it's competitors.

According to tams claims it is approx 50% cheaper than its competitors (in the prospectus). I haven't independently checked this claim but if true it would explain why organic growth of aum is so strong. Tam thinks it's quite hard for competitors to copy the cost structure too.

Damian Cannon did a good write up on tam here:-
https://www.stockopedia.com/content/equity-development-seminar-february-2020-558651/

Berksbee

9th Jul '20

Hi Roland, very interesting - thanks. I happen to own the 4 defensive shares you mention above. Finsbury is part of my new Blastig portfolio that I've created since I joined Stockopedia. The portfolio was started on 20th Feb (so awful timing) and is based on Screens (Q/V). I am pleased to report is in the black - just - so ~20% ahead of the Market. TAM has gone onto my watch list. BTW have you any views on FIN - the news form them is quiet to the point of morbid.

Regarding cash - I am mostly invested with my UK Portfolio but am at about 40% cash with my (very successful, but much smaller) US one. Think the valuations of the US tech shares are entering bubble territory.

Roland Head

Hello HRR,

Thanks for flagging up Damian's write up. It's always useful to get another perspective.

I'll have to dig a little further into Tatton Asset Management (LON:TAM) cost structure.

Regards,

Roland

Hi Berksbee,

Thanks for your comment. It sounds like your new portfolio has performed pretty well so far this year.

I don't know much about Finablr (LON:FIN) but I believe it has until until 28 August to file accounts (here). I fear the outlook for equity may not be very good, given the possibility of fraud and high levels of indebtedness. Commiserations to holders.

Hi Roland - many apologies - I meant Finsbury Food (LON:FIF) - Finsbury Foods - which is the one real laggard in my portfolio and you also hold in SIF. I appreciate though that everything depends on an in price. FIF ticks a lot of boxes but has shown no inclination to bounce. I too had never heard of FIN - and am glad I hadn't!

IncredibleMosesLeroy

10th Jul '20

Morning Berksbee, I too had been frustrated with the RNS silence from Finsbury Food, so I shot them a cheeky email at the end of May asking if everything was ok, and did they need rescuing from a giant dough mixer, etc.

A very nice PR bod called me back that day to explain that FIF were trading to the big supermarkets at roughly the same rate, but that their catering supply side was effectively paused. She promised a big update by the end of June.

When the end of June came and went with no update I sold 50% of my stake. I still like them as a business, but it seems very straightforward to know how many cakes you are selling and to whom, and the impact on revenues- not sharing with investors makes me uncomfortable.

As ever DYOR.

44% in cash as of this morning

Adrian Charles Dewey

13th Jul '20

Sounds tempting - however I'm sitting on my hands for now. As a newby not "qualified" to say more but thanks for asking. Iv'e just got burned - bought Babcock back in April just wish I had had Stockopedia then rather than relying on Simply Wall Street. Also bought Enbridge, Ternium and Unum using same source. First two Okay but UNUM is a bit sticky will hold all (they are in this years ISAs') for now in the hope that the divis will help compensate for poor pics.

By-the-bye, and fortunately, I bought Gilts many years ago and they are providing a good reliable I/C will definitely hold and just trade around the edges with cash as it becomes available. At 84 and 81 our horizons are limited!

Jef Warwick

I like Tatton AM - but dont like the chances of a V shaped recovery. Will definately mark this stock as one to potentially buy when the current house of cards falls (as I suspect it will between mid-August / September)

stevenhume

14th Jul '20

The CEO Paul Hogarth previously co-founded Bankhall. He has been there and done it. One of the reasons I hold this stock.

Montyville2

19th Nov '20

Recent interim results were very strong in my opinion yet I have been surprised by a lacklustre SP performance. Do others think it is just symptomatic of a struggling financial sector just now?

Damian Cannon

I agree the the H1 results were good. These are the thoughts that I wrote down last night after going through the results and listening to the results presentation:

Tatton is a remarkably high quality business at a decent valuation. I say this because consistently high operating margins (>30%) have enabled a high ROCE (>50%) even as the business has grown at double-digit rates. Capital requirements have remained low driving the FCF conversion rate above 100% in many years. Despite this the share price hasn't managed to gain much traction since listing at 156p in 2017. For sure its done alright, being up 81% since that point, but the P/E rating has drifted down from 30 to ~20 now which tells me that the shares haven't kept pace with earnings growth. This is a conundrum as analyst forecasts point to 40% EPS growth in 2020, despite dipping 8% from 14.95p to 13.7p over the year, and Tatton have just reported H1 earnings of 6.55p (up 21% on improving margins). Listening to results presentation it's clear that the investment part of the group has performed very well so far while IFA services took a knock from mortgage and valuation work cratering during the lockdown. Still the housing market has bounced back strongly since the summer and it's reasonable to have some optimism for H2. It's still hard for IFAs to bring on new clients, which is a headwind, but eventually restrictions will ease and Tatton will be in the right place to benefit. At the same time it's clear that management are on the acquisition trail. One bid fell through (which suggests that they won't pay any crazy price) but they now have a £30m credit facility in place which makes them deal ready. There's a lot to like here and when the share price breaks 300p I reckon that it'll move up quickly to the 400p level.

SIF Folio: Super profitability at Tatton Asset Management

So far, so good

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Roland Head

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