Good, potentially good, bad and ugly
Published: Aug 29 2017
H&T is now back in expansion mode having weathered the downturn in the market far better than most of its rivals. The core pawnbroking pledge book is up 11% year-on-year to £42.7m; retail sales rose 12% to £15.3m; gold purchasing increased sales volume by 48%. In the absence of a sharp fall in the gold price we can expect profits for 2017 to be in the range of £13-15m (the range because pre-Christmas sales of “pre-loved” jewellery are important and variable) instead of £10-12m.
The leak of the potential merger between Rathbones and Smith& Williamson provoked a rise in Rathbones’ share price – contrary to the general trend that bidder’s share price falls while the target’s price rises. The assumption being that the synergy would outweigh the premium being paid to acquire S&W.
Harvey is the first hurricane to hit the US mainland for a nearly five years and has already caused several $billions in damage. The destruction will result in a short-term hit to companies insuring or reinsuring properties in Texas but the weakening of the winds and their destructive power (indicated by its official downgrading to a “Tropical Storm”) means that it is unlikely to trigger a change in the downward trend in reinsurance and insurance rates.
Beazley has been expanding its property insurance book in the USA over the last few years so may take a modest hit, but this segment is only a small percentage of its book or premiums. We are also sanguine about Hiscox which has a policy of avoiding visibly underpriced risks.
Provident Financial has been providing a service valued by millions of customers over the years and this, even if not ended altogether, will be lost to tens of thousands due to an unwise decision to replace the nominally self-employed agents who had served them well over the decades with “customer experience managers.”
The fair weather investor
Published: Jul 28 2017
Results being rushed out before investors go on holiday in August? No, it just feels like it with three in three days, followed by two trading updates, the latter two arriving while this note was being written.
Beazley started off the Lloyds results season with another good performance, but with a warning about a continued decline in premium rates. It must be noted that the increase in profits is wholly due to a better investment performance and that Beazley’s underwriting profits were about 4% lower – still a remarkably good performance since a 2% fall in premiums should, ceteris paribus, reduce underwriting profits by 20%.
WHIreland reported an impressive turnaround into profit in H1 2016/8, despite some further one-off costs, this time partially offset by a one-off profit on the sale of its old Head Office. The share price, which had risen over 10% on its trading update last month, rose again, more modestly, in response. Please see our separate note for more details.
It is becoming predictable that Rathbone’s interim results will be good. FUM rose 7% to £36.6bn mainly thanks to organic growth supported by positive investment performance and a small amount of “purchased growth”. We consider that RUTM will continue to be highly profitable as investors are generally happy to pay for good performance, which RUTM continue to provide (their three larger funds with £3.2bn of assets are all first quartile for YTD, 3 years and 5 years, the smaller ones with £0.2bn are second quartile over 5 years).
Brewin Dolphin produced a pleasing performance in its Q3 with income up 8.4% vs Q3 of 2015/6, only a little of which came from the Duncan Lawrie acquisition that completed in May. AUM growth outperformed the WMA index significantly, even excluding the acquired funds, thanks to net flows of £0.3bn into its Managed Portfolio Service for mass affluent investors, a 67% rise, and a similar amount in funds directed to its discretionary service by intermediaries abetted by a modest but useful investment outperformance.
Charles Stanley also outperformed the index in growing AUMA – in their case thanks to a net inflow of funds from existing clients – by 0.4% to £24.1bn. Revenue growth was more impressive to £38m for the quarter, a 13% increase from their Q1 of 2016/7. The latter suggesting that we may see an overdue improvement in profit margins in the current year.
Brooks MacDonald also achieved a strong performance with Discretionary FUM rising 5.3% in the quarter to pass the £10bn milestone, through a combination of net inflows of £0.3bn and positive investment performance of £0.2bn, the latter being noteworthy in the context of a declining index. For the year to end-June FUM grew an impressive 26%.