Good morning,

It's Paul's day off today, so I'm planning to cover 3-4 of today's stories in his absence. First up is Record (LON:REC):



Record (LON:REC)

Share price: 42.375p
No. shares: 221.4m
Market cap: £94m

Fourth Quarter Trading Update

This is an unusual type of asset manager, as it is focused on currencies rather than equity/fixed income.

One might ask: when clients want hedging or currency-derived returns, shouldn't banks be the go-to provider? How can a smaller institution compete with them?

On the hedging side, it doesn't surprise me that there is space for a smaller, independent player. After all, there are plenty of currency brokers dealing with the retail market, providing individuals with advice and better rates on their FX needs when they expatriate/repatriate, buy foreign property, etc. Think of Record as a large, institutional version of this!

And on the currency-derived return side, Record acts similarly to any other independent asset manager or hedge fund.

So, in principle, I'm very comfortable with the idea that there is space for an independent currency specialist, focusing on institutional clients.

The track record of profitability isn't bad either: profits were reset lower during the 2008-2012 period, but have been stable since then.

Which brings us to today's update:

58f9de2a9cb6cREC_20170421.PNG

(AUME = Assets under Management Equivalent)

So it's a 2.8% gain in USD terms, and also a 1.7% gain in GBP terms.

My opinion

I'm kicking myself a little bit when I look at the share price chart - even after today's slide, the shares are higher than they've generally been over the last couple of years.

Admittedly, it's not the easiest investment thesis.

On the positive side: 

  • The company has always been financially strong. At the last interim results (for Sep 2016), it had a tangible and liquid balance sheet which included cash and short-term instruments worth some £36 million.
  • In the absence of strong growth, dividends have at least been generous relative to earnings (1.7p divis in 2016 versus 2.5p EPS).

On the negative side:

  • The client base is not too well-diversified. According to today's update, the number of clients has reduced from 64 to 59 (this time last year, it had 58 clients).

Note that today's update shows AUME up by $1.6 billion, but $2.1 billion of increase was due to movements in global stock markets and exchange rate movements. So the…

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