European Wealth's (LON:EWG) plan to grow through targeted acquisitions and to consolidate in the investment industry in the wake of regulatory changes is rolling on apace as underlined by its purchase of ISM, completed last week.
ISM is a City based independent financial adviser, or 'IFA' as they are known in the trade, and had sales last year of £1.1mln and will further strengthen European's financial planning business (the other arm of the group is investment management).
City broker Panmure, which rates European's shares a 'buy', expects the purchase to add £1.2mln to the group's future revenues on an annualised basis and would be "materially accretive" to earnings per share (EPS), which it expects will grow to 0.8p in 2015 full year results.
The broker applauds EWG, which it says, has built a "scalable platform", has good organic growth and scope for further acquisitions in the UK and overseas wealth management market, which is "ripe for consolidation" following the RDR reforms.
By 'RDR', Panmure is referring to the retail distribution review three years ago, which introduced new rules aiming to improve standards of financial advice and consumers' understanding of the costs involved.
John Morton, EWG's chairman, explained how this had created acquisition opportunities for the newly incarnated EWG, which listed on AIM in 2014 after a reverse takeover, as it had been established with the "post RDR world in mind".
Most of the rule changes have been in the financial planning side, he said, where the payment structure has shifted from commission to a more professional on-going fee charging model, he said.
This has meant a number of smaller IFAs and sole practitioners have been driven out of business, unable to sustain margins and that's where EWG stepped in.
"Clearly there is becoming a need for there to be size (scale) to be able to make a good return on the investment of being in the industry," said Morton. "That gives us an opportunity to look at a number of acquisitions."
A notable acquisition by the group, said Morton, was Worcester-based financial planning outfit Bradley Stewart in 2012.
It meant EWG instantly took on a number of pension management schemes, complementing its financial planning side but also offered customers’ another service. A lot of Bradley's clients were also retained as they were moved from the commission world to fee-paying, said Morton.
"It really gave us the backbone to then be able to acquire a company called Compass, which had the effect of really bulking up the volume going through the business and therefore giving us the sort of economies of scale we were looking for."
Surrey-based Compass, which was bought last summer, had £31 million in funds under influence and in 2013 posted turnover of £434,230, of which around 76% was recurring income. It recorded a pre-tax profit in the year of £154,250.
Meanwhile, in its maiden set of full-year numbers in May, European Wealth clearly showed just how such acquisitions were paying off. Funds under management (FUM) stood at £1.03bn at the end of 2014 - an impressive 59% higher than at the end of 2013.
Revenues increased 16% to £6.7mln from £5.8mln in 2013, while the earnings before interest, tax, depreciation and amortisation narrowed to £203,000 from £368,000 the year before.
Panmure sees revenues rising to £8.2mln in 2015 and £10.2mln in 2016, when adjusted EPS is expected to have reached 6.8p a share.
Last year the firm said it was aiming to get to around £3bn in funds under management in the next three years - an aim which is "on track", said Morton, but added that the group didn't intend to make acquisitions just to attain that number.
"I think it's more important to build a high quality, sustainable business," he said.
The stepping stones to achieving that certainly appear to be in place, not least due to the current government changes in pensions rules and the way people can manage their own investment affairs in a much more hands-on way.
"A good flow" of people are knocking on EWG's door currently, if only out of confusion, said Morton, in the wake of big pension changes - the most notable being the new ease of access and ability to take lump sums.
"The whole pension world is getting turned on its head," said Morton and he reckons it will take at least six months before the "noise dies down".
"It's almost creating a new way of saving and having as much effect as the introduction of ISAs and PEPs did donkey's years ago. One can't underestimate the impact," he said.
All of this augurs well for a business that is unencumbered by any legacy issues and has management experienced in integrating new businesses.
Lets leave Panmure the last word: "EWG has de-risked the business through its centralised investment process incorporating risk based modules that has driven consistent investment outperformance. EWG has been designed to be client centric and compliant."
Panmure has a price target of 140p on the shares - pretty handsome upside considering they are now at 88.5p.
It will be very interesting to see just how much the group grows – investors will hope in the same way its customers' portfolios also attract growth.|
|The placing announced this afternoon is EIS qualifying, so the effective price is 56p/share for UK tax payers.
I've had a nibble in the placing, so it's a three year hold for me.|
|The price was about 2% of AUM which about market price.
The level of fees derived from the AUM is about half of the usual so plenty of scope for uplift probably.|
|Quiet board here.
Looks like a decent acquisition, though not exactly cheap for a loss making operation. I guess one has to trust the management that they have done a good deal.
I expect another interview on Brrmedia with some more colour will be forthcoming.|
|Listen: European Wealth (EWG) - Trading update
Click the link below to listen
|Positive trading update today. FUM now £0.82b - up 24% in last six months. And -
The Group is also expected to show a positive EBITDA for the first half, excluding the one-off costs of the admission
|I think it is a good deal. If they can knock out property costs, regulatory expenses, office costs etc then the benefit will be a lot more than £150k.
There is also the possibility of cross selling which should add a bit.
In the end it is likely to have been bought on a p/e of around 3 or 4 which given a sector average of quoted companies of around 14 represents a good deal.
The more the better IMV.|
|Yes - JM does say in the RNS - "We also see significant scope for improving Compass's operating costs"
The "This is Money" article you linked to above quotes a valuation metric of 2.5 - 3% AUM so this maybe doesn't look cheap on that basis but I guess it's more about strategic benefits, growing the client base and operational cost savings.|
|I make the acquisition about £1m and the income will be £150k plus any costs savings on top.|
|Oops wrong thread again!|
|Another acquisition announced this morning, plus a placing at 90p -http://uk.advfn.com/news/UKREG/2014/article/62687268
Good to see Directors buying (even) more in the placing -
|A bit of news;
Hopefully he didn't forget to bring a copy of his client list. A nice way to expand AUM.|
|08-May-14 Daniel Stewart Buy 110.00p - 140.00p New Coverage|
|From the very end of that interview, JM states that his aim is to grow to around £3bn AUM in 3 years - about 4 times the current level. Let's hope he can do it without a four fold increase in the number of shares ;-)|
European Wealth Group: The time is right for AIM listing
A reverse takeover by EW Group has brought European Wealth Group to the market, introducing to AIM a fast-growing wealth management business.
Executive chairman John Morton explains why the time is right for the new group to join AIM. As well as comforting clients about the business, Morton says the listing will give the company better access to capital.
He also talks about the company's plans for more acquisitions when the right opportunity arises.
|The share capital reorganisation has been completed with one Ordinary Share being issued for every 60 ordinary shares previously in issue.|
|Why is it up 5800%??|
|Any ideas as to what prompted yesterday's excitement? A bit of Googling revealed only the following -
"EW Group advanced 0.5p to 2.10p following completion of the reverse takeover of European Wealth Management, which over the last three years has grown assets under management from a standing start to £700million-plus today.
Read more: http://www.thisismoney.co.uk/money/markets/article-2621849/MARKET-REPORT-Spuds-deal-The-jersey-Royal-Company-boiling-point.html#ixzz310b8mPJy|
|emps - ru still in here? I took some last Aug and am happy to stay with them.
|Have these been tipped?|
|All very pleasant.|
|Please note the following thread, which may be of interest:
"THE REVERSE TAKEOVERS & SHELLS THREAD (RTO)"
|Proactive Piece here, just saying what you said Kimboy but in more words :-)
Hi Loftus, never did buy Verdes, cant buy everything, hope you do well with them.|
|The strategy is fairly clear. Growth in the share price is going to come from the growth in AUM, synergies from acquisitions and hopefully an operational gearing on profitability.
Looks feasible to me.|