AFH Financial is going for growth

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AFH Financial is going for growth
Master Investor Magazine

Master Investor Magazine Issue 59

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Now with over £6.2bn assets under management, this group is aiming for £10bn, writes Mark Watson-Mitchell. 

Established way back in 1990, this company, which joined AIM in 2014, has grown significantly, especially over the last few years as it tucked more companies into its fold.

The company announced its end-October 2019 final results a couple of weeks ago, they reported the sixth consecutive year of strong revenue and earnings growth since it came to the market.

Today the Bromsgrove, West Midlands based group AFH Financial (LON:AFHP) has 12 offices across the UK and counts over 200 independent financial advisers amongst its ranks. It has over £6.2bn of assets under management, having grown 40% in the last financial year alone.

The group has three main operating subsidiaries: AFH Wealth Management; AFH Private Wealth; and Eunisure.

AFH Wealth Management’s IFAs provide financial planning-led wealth management advice and a variety of services to the UK’s high net worth private client market. They also act for a number of corporates. It is this division that handles the £6.2bn AuM.

AFH Private Wealth is possibly more exclusive in its services, in so much as it appoints personal dedicated client executives to handle special wealth management support and advice for the group’s more discerning investor clients.

Eunisure has a network of more than 300 protection advisers across the UK. Health, lifestyle and income – this company provides its clients with affordable insurance solutions to cover what they need to value and protect.

The group has some 42.8m shares in issue, of which 13.2m are held by boss Alan Hudson and his board.

Large holders include Slater Investments (10.65%), Lombard Odier (6.34%), Northern Trust (5.09%), Merian Global Investors (4.99%), BMO Global (3.96%), Polar Capital (3.83%), and Rorema Beheer (3.70%).

The policy of growth by both organic expansion and strategic acquisition is very evident when you look at the group’s revenue and profit record over the last three years. From sales of £33.6m in 2017, to £50.6m in 2018 and up to £74.3m for the year to end-October 2019.

Operating profits in that period rose from £3.73m in 2017 to £7.94m in 2018 and up to £14.0m last year.

The profit after tax was up 82% to £10.8m in 2019, pushing earnings up from 16.0p to 25.4p per share. Conservatively the dividend rose just 33% to 8p per share.

Trading in the current year remains strong and the group has plenty of cash to meet requirements. Estimates for net income this year suggest £12.1m and then up to £14.6m next year. The growth continues.

The group’s three to five-year strategy is very clear: it aims to have AuM of £10bn producing some £140m of revenues and operating on a 25% underlying EBITDA margin on revenue (last year it was up from 20.6% to 23.2%).

Based on its previous record I do believe that all of those targets look totally achievable.

Liberum Capital and Shore Capital, joint brokers to the company, both rate the shares as a ‘buy’ and, after the recent results, Liberum has actually raised its sights from 484p to 569p.

The whole of the financial sector, especially those companies with funds under management, is seeking strong growth and as such I do feel that AFH could become a predator’s target. And it is valued at only £165m.

With its shares currently trading at around the 388p level, they look like a cheap growth stock to me.

Cautiously, I now set my end-2020 target price at 480p.

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