The asset management industry is going through a challenging period. Not only are investors gravitating to low-cost passive tracker funds and ditching actively managed funds — just look at Neil Woodford’s woes — but regulators have increased their focus on the industry significantly which is causing costs to soar.
As a result, there’s been considerable consolidation within the sector in recent years as firms have acted to strengthen their market positions and boost their margins, and this is a trend that looks set to continue. With that in mind, here’s a look at two highly profitable niche asset managers I think could be takeover targets.
Impax Asset Management (LSE: IPX) focuses on sustainable investing which seeks to consider both financial return and social/environmental good. Founded a little over 20 years ago, the group offers a range of thematic and unconstrained global equity strategies as well as real asset funds focused on the growth opportunity arising from a sustainable economy.
It’s this niche focus I believe makes Impax a prime takeover target as public interest in issues such as climate change and environmental protection is increasing and the demand for sustainable investments is on the rise. Impax, which has won awards for its sustainable investing in the past, could be a great fit for a larger asset manager looking to boost its presence in this area, in my view.
Impax has grown significantly over the last decade and today’s half-year results show further progress. The group enjoyed inflows of £887m over the six months to 31 March, boosting assets under management by 6% to £13.3bn, while revenue and profit before tax jumped 32% and 69%, respectively.
Moreover, in a statement of confidence from management, the interim dividend was hiked 36%. Chief executive Ian Simm commented: “Impax’s specialist expertise as investors in the transition to a more sustainable economy is resonating with a range of asset owners around the world, and the company remains well placed for further growth.”
Impax shares have fallen on today’s results, but I would view any share price weakness as a buying opportunity. The shares are not particularly cheap (forward P/E of 25), but given the growth story, I think they deserve a premium.
Another asset management company I think could be a takeover target is Liontrust (LSE: LIO), which runs a range of specialist investment funds and also has a focus on sustainable investing. It had just under £13bn in assets under management at 31 March.
While many other asset management companies have been struggling recently, Liontrust has been thriving. For example, for the year to 31 March, the group enjoyed record net inflows of £1.8bn, which boosted its assets under management by 21%. This is a particularly strong performance given the UK asset management industry as a whole experienced negative retail fund flows in six out of the seven months to the end of February.
Liontrust shares currently trade on an attractive P/E of just 13.2 which I think could increase the group’s takeover appeal. There’s also a healthy yield of around 4% on offer right now. Overall, I see considerable investment appeal in this small-cap champion.
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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Liontrust Asset Management. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.