Liontrust - approaching full speed

Liontrust: I first looked at this stock last November, when the shares looked attractive at 215p. Since then, they have marched on, to brush the 300p level, but after today’s expectation-beating results they are still worth holding. In the year to 31^st March 2015 revenues grew by 30%, with adjusted pre-tax profits jumping 45% to £12.1m. Adjusted eps were 22.51p, up 31.6% from 17.10p, helped by performance fees, which added 1.95p per share. Having previously doubled the interim dividend to 2p, the final has been trebled to 6.0p, giving an annual total of 8.0p, up 167%. The group finished the year with £16.4m of cash and cash generation is set to be strong in FY2016. AUM finished the year up £900m at £4.5bn, an increase of 24%. Of this £900m net inflows were £667m and the balance market movements. The existing funds are building good track records, a global equity team has been recruited and a water and agriculture fund is due to be launched later this year. These factors all suggest that further useful AUM growth is on the cards.

As with any equity dominated asset manager, there are plenty of challenges ahead. Regulation is an ever-increasing burden, fees (and their structures) are under pressure, whilst the human assets still go up and down in the lift every day. We still seem to be in a sweet spot for equities, with a benign, if unexciting, global economy, low inflation and low interest rates. At the same time, cash and gold yield nothing and the bond markets look like a well-inflated balloon. Increasing life expectancy and wholesale pension reforms mean that secular demand for savings products is with us. In these conditions Liontrust are justified in looking forward to another successful year (and more) ahead. Eps in FY2016 could hit 26.5p, including a guess at performance fees of 2p per share. Applying a multiple to transient performance fees is a tricky debate, but at 300p that is a PE of just 11.3x. Even stripping out performance fees, results in more like 24.5p for a still tempting PE of 12.2x. On this basis a repeat of this year’s 42% earnings payout ratio, would be a dividend of 10.3p, for a yield of 3.4%. Beyond that, a rapidly growing cash pile opens up all the usual debates about the best way for the board to allocate capital. So even after a strong run, equity fans and dividend growth investors should still be happy to own this stock. (Neil Cumming^, 18^th June 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower