Resilience proven & growth trajectory intact

Tatton passed the March 2020 market-crash stress-test with flying colours. Financial advisers continued to trust it with their clients’ money – net fund inflows were £86m in March (just under the FY20 average of £94m pm) – at a time when many funds saw record outflows. Over FY20 Tatton recorded £1.1bn of inflows, and despite the market bottom nearly coinciding with the 31-Mar year-end, AUM closed 10% above FY19 on £6.7bn. Revenue grew 22% to £21.4m; adjusted operating profit was up 24% to £9.1m; PAT jumped 72% from £4.9m to £8.4m; and full-year dividend increased 14% from 8.4p to 9.6p, a yield of 3.3%. Tatton remains debt-free with £12.8m of net cash.

Client inflows have continued post year-end which, in combination with the recovery in markets, has seen AUM grow 10% in two months to £7.4bn on 31 May 2020. Tatton’s longer-term growth trajectory appears firmly intact, however further market volatility could cause significant fluctuations in AUM levels over the shorter-term. Operational leverage should see margins improve further as the business scales.

There is valuation upside if Tatton continues to deliver. Its PER of 22.5 is below high performing asset managers - and Tatton is a 1^st quartile performer on most metrics: AUM inflows, revenue growth, operating margin, EPS growth and ROE. It’s current 295p price is roughly in line with our discounted cash flow valuation of 300p.