Asset management companies appear to be doing well at the moment. That’s possibly partly due to our emergence from the banking nightmare becoming ever more distant in the rear-view mirror, possibly buoyed by some renewed optimism for the oil sector and, I suspect, our current stormy economic outlook as we rush towards Brexit. All that could be sending safety seekers their way.
Whatever the contributing factors, Impax Asset Management Group (LSE: IPX) has been enjoying a storming few years, with earnings per share (EPS) more than doubling between September 2013 and 2017. That enabled the firm to more than treble its dividend over the same period.
The year just ended has seen assets under management ballooning by 61% to a record £7.3bn. Since the 30 September year end, the figure has grown further to £7.6bn.
Net inflows of £2.1bn over the year contributed to that, leading chairman Keith Falconer to describe it as the firm’s “strongest growth since its inception in 1998.“
Best year yet
Revenue soared by 55% to £32.7m, with pre-tax profit up 13% to £5.9m, and shareholders’ equity up 33% to £35.6m.
Forecasts for 2018 suggest EPS growth of 18%, which would put the 159p shares on a P/E of a little over 20, which I don’t think is too stretched for a company with growth prospects — plus a strongly progressive dividend policy.
The dividend is expected to grow in line with EPS at 18%, to provide 3.45p per share by next September. That would be more than twice covered by earnings, which I think is conservative for a company of this nature.
Although the yield is currently low at around the 2% level, a strongly progressive yield like this can provide more long-term cash than a higher but flat yield today — and that’s something I like a lot when seeking out income shares.
A steady high yield
Mixing today’s high yielders with tomorrow’s potential cash providers can produce a risk-balanced portfolio, especially if spread across sectors.
In fact, the tobacco giant has been offering yields of around 4-5% in the past few years, with a 6% yield penciled in for the year to September 2018. A share price fall over the past year or so, to today’s 3,056p, has helped boost prospective yields.
Cover by earnings has been steady at around 1.5 times, or better, which I see as providing more than adequate safety.
The share price drop was worsened today as Palmer & Harvey, a big distributor of tobacco products in the UK, has gone bust. And that is expected to knock up to £160m off Imperial’s operating profit this year, mostly due to non-recoverable excise duty. But it’s a relatively small hit over the long term, and it doesn’t damage my attraction to the stock.
As the shares have fallen, we’re now looking at a forward P/E of only a little over 11, and I see that as temptingly cheap.
And though smoking is becoming increasingly unpopular in most developed countries, the ongoing growth in volumes for the firm’s Growth Brands (up 5.5% in the year to September) is still bringing in the cash.
My only personal objection to Imperial Brands is ethical, but otherwise it would be firmly on my buy list.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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.