Rising markets are proving to be an excellent tailwind for AIM-listed investment manager Brooks Macdonald (LSE: BRK).
According to the company’s half-year trading update published this morning, for the six months to the end of December, funds under management expanded 12.3% during this period. Net organic growth over the period was 7.7%, with rates of growth remaining strong in UK Investment Management.
For the three months to the end of December, assets under management expanded 6.8%. The growth was a combination of several factors, including performance (£319m) and net new business (£431m).
Unfortunately, even though Brooks seems to be attracting new business, management warned today that due to lower yields across the market, performance had deteriorated and this is weighing on margins. Still, a tight grip on costs, management believes, should help offset this pressure. Today’s update said: “Our strong FUM trajectory, combined with a disciplined approach to costs, means we are well placed to mitigate external pressures on revenue yield.“
Improving dividend outlook
For the full-year to June 2018, City analysts are expecting Brooks to report flat earnings. But next year, growth is expected to return with an expansion of 22% pencilled in, giving a 140p per share estimate of forward earnings. On this basis, the shares do look slightly expensive, trading at a forward P/E of 14.3. However, it’s the company’s dividend potential that interests me.
Analysts are expecting the firm to pay out 50p per share to investors for 2018, and 60p for 2019 giving a dividend yield of 3.1%. This payout is going to cost around £6m, easily covered by the estimated pre-tax profit of £23m and backstopped by £32m of cash on the balance sheet as of the end of fiscal 2017.
So not only does it look as if Brooks’ dividend is safe, but it also seems as if management has plenty of room to grow it further in the years ahead.
Market-beating managers
Miton Group (LSE: MGR) is another asset manager with a bright dividend future. At the time of writing, the shares support a dividend yield of 3.2%, which is just below the market average. However, over the past four years, the dividend has doubled as earnings per share have risen 100%, and City analysts are expecting growth of 28% for 2017 followed by 14% for 2018.
This earnings expansion should, according to the City, enable the firm to increase its payout 40% during the next two years. Backing up the distribution is a net cash balance of nearly £20m.
A trading statement issued by Miton last week confirmed that the company is on track to hit City growth targets for the full year. For the 12 months ended 31 December, assets under management were £3.8bn, up 32% year-on-year. A strong performance by the group’s funds during the period helped convince investors to come on board. 13 out of 15 of Miton’s funds were ranked as “first or second quartile performers since manager tenure.” Also, the group’s top fund manager, Gervais Williams has a significant stake in the firm.
As long as its fund managers can keep up this rate of outperformance, Miton should continue to throw off cash and fund further dividend increases.
