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Analysts upbeat on Jupiter despite private client revenue hit

Analysts upbeat on Jupiter despite private client revenue hit

(Update) Jupiter Fund Management’s pre-tax profit fell 18% during the first half of the year, as costs associated with the sale of its private client business and a £2.6m write down of Adria took their toll.

The group saw assets under management reach £33.1 billion over the period, buoyed by net inflows of £875 million. Assets were up from £31.7 billion at the end of 2013. It said the strongest contribution had come from its fixed income range.

Pre-tax profit fell 18% to £48.4 million on the year, which Jupiter attributed to £5.3 million of costs incurred on the private clients transaction and a £2.6 million write down of its available for sale investment in Adria to nil over the period. iO Adria, formerly Jupiter Adria, was originally set up by the firm and has been investing in Croatian resort real estate since 2006. Jupiter noted that over the same period last year it had made a £6.7 million gain made from the sale of its stake in Cofunds.

Net revenues for the period stood at £148.5 million, up 6% on the year. This was driven by an increase in net management fees to £141 million, up £10 million compared to the corresponding period last year. The group gathered £0.7 million in performance fees over the six months, up from £0.5 million the previous year. 

Jupiter announced its interim dividend to shareholders has increased to 3.7p.

Private client revenue hit

The group said the sale of its private client and charity business to Rathbone Investment Management is on track for completion at the end of the third quarter of 2014. As a result of this transaction, Jupiter expects to receive gross proceeds between £32 million and £43 million, with net proceeds after tax and deal costs expected to be between £20 million and £25 million. 

Of the £2.2 billion of private client assets, some 30% is invested in funds managed by Jupiter. These assets will stay with Jupiter immediately after the sale. However, the fund group anticipates that in time the net financial impact will be a decrease in revenue and profits of £12 million and £2 million per annum respectively.

‘This decision was taken on strategic grounds, as we believe it will simplify our operating model, reduce risk and increase our ability to focus on growing our core mutual fund franchise,’ Jupiter noted.

At 9:17 shares were down 2.2%, trading at 404.9 pence.

Net initial charges of £6.8 million were down from £8.8 million in 2013, due to a less favourable pattern of sales versus redemption activity across individual funds and the continued expected reduction in net amortised front-end fees.

Maarten Slendebroek, chief executive (pictured), commented: 'We are pleased with the progress being made on the implementation of our growth strategy during the first half of 2014. The board's intention to increase cash returns to shareholders through a combination of ordinary and special dividends reflects this progress and confidence in our future growth potential. We believe this approach will allow shareholders to participate in our organic growth story while receiving an attractive yield.'

Earnings before interest, tax, depreciation and amortisation (Ebitda) was £76.3 million over the first half, up £1 million on the year, as higher net management fees were offset by an increase in administrative expenses. The group's Ebitda margin was 51% per cent.

Variable staff costs of £25.4 million were up 6% versus the corresponding period in 2013. This was due due in part to higher profitability, with cash bonuses increasing in line with earnings. The additional increase in these costs was due to the continuing roll-out of the post-listing compensation structure, Jupiter noted, driven by the addition of an extra year of awards under the LTIP scheme and deferred bonus plan.  

The variable compensation ratio stood at 25%, up 1% on the year. This excludes a £0.6 million charge in respect of options granted prior to the listing over the remaining shares in the pool established for employees at the time of the management buyout in June 2007.

Analyst reaction

Analysts reacted positively to the fund manager's half year results.

Panmure Gordon has Jupiter on a buy rating, with a price target of 470p, significantly above its current share price of 408p. The broker anticipated a 90% increase on the dividend payment, whereas the firm's decision to keep the interim dividend as a 50% payout at 3.7p. Nonethless it pointed to strong cash generation and balance sheet.

'Jupiter may have disappointed us on the dividend but the underlying cash generation is strong and the balance sheet is debt free. With a good rate of inflow in the first half of 2014, the outlook for growth is favourable, in particular on Jupiter’s international strategy designed to augment its UK success,' Panmure noted. 

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