Advice consolidator AFH Financial’s interim results were received favourably by the markets on Monday. The shares, at 340p at close of market on 4 June, had risen by 9.7%.
While the firm’s numbers came in slightly ahead of the expectations of house broker Liberum, it would seem they were significantly ahead of what the markets expected.
Half-year revenues rose by 63%, to £22.7 million. And the underlying earnings per share (EPS) was largely in step with this, rising by 62%, to 9.98p.
Much of this growth has come through acquiring business, rather than from AFH’s own organic growth. Indeed, in the six months to 30 April, the firm purchased six businesses, making it hard to compare performance with the previous year.
But Jamie Donald, diversified financials analyst at Liberum, said: ‘They have a history, since 2015, of successfully acquiring new businesses.’ And he added the £23.7 million cash on the balance sheet will allow them to make further acquisitions.
AFH trades on an adjusted earnings-per-share of 13.6 times forecast full-year earnings for 2018 (at close of market on Monday), after taking out the net cash on the balance sheet.
This is not a cheap rating, but the firm does have good earnings visibility and strong recurring revenues. ‘Clients build up personal relationships with financial advisers,’ said Donald, ‘so revenues are quite sticky.’
He added Liberum is ‘reasonably confident AFH can continue to increase funds under management. We forecast such assets to reach £4 billion by 2020, without acquisitions.’
Donald also pointed out AFH can further leverage its fixed cost administrative base when it acquires new businesses. ‘When acquiring new assets, AFH can still generate the same revenues but at less cost, due to the operational leverage,’ he said.