You may never have heard of Dublin-based financial services group IFG but that could change, says Stuart Widdowson, manager of the top performing Strategic Equity Capital (SEC) fund.
Widdowson, whose SEC investment trust has delivered a 140% total shareholder return over three years, said IFG Group (IFP) was one of only two smaller companies he could justify adding to the portfolio in the last financial year.
‘Good quality growth can be difficult to find. We’ve found two in the past 18 months but it’s taken a lot of turning over of stones to find them,’ said Widdowson.
Although IFG, the first of the two, does not have a high profile, its main subsidiaries are well known in UK financial services. They are:
- James Hay Partnership, the investment platform and Sipp (self-invested pension) provider used by independent financial advisers; and
- Saunderson House, the wealth manager looking after many of the City of London’s top lawyers and accountants.
Strategic Equity Capital has built a stake of just over 5% in IFG this year following a reorganisation of the £160 million company under new management. ‘It’s gone through a period of investment and should go through a period of growth,’ said Widdowson (pictured).
Getting in shape
The past two years has seen IFG dispose of six underperforming advisory and insurance businesses in Ireland, the UK, France and Asia and plough £20 million back into James Hay and Saunderson House.
The shake-up followed the appointment of John Gallagher as chairman in 2013. Gallagher and wife Bernie are famous in Ireland for selling the Jurys Inn hotel chain to former property tycoon Derek Quinlan in 2007 for €1.1 billion just before the financial crisis devastated the country. They own nearly 10% of IFG through their Crownway Capital investment company.
The arrival last year of chief executive Paul McNamara, former head of investments and insurance at Barclays bank, confirmed IFG was intent on going places and reversing a trend of falling profits.
Although pre-tax profits last year fell to £4.6 million last year from £5 million, the latest half-year results to the end of June showed adjusted operating profits up 12% to £4.4 million on revenue from continuing operations 10% higher at £34.5 million.
Last month McNamara (pictured) told analysts the group had seen a rebound in cash generation on the back of growth in James Hay and Saunderson House.
At the meeting James Hay boss Alastair Conway explained that while the adviser platform was the seventh largest in the country, with £17.3 billion assets under administration, its average case size of over £332,000 was the second largest, which boded well for future profitability.
Similarly, Tony Overy, managing director of Saunderson House, said the firm occupied a valuable niche with 1,800 clients with an average of £2 million each. Underpinned by a graduate training programme, that is still rare in financial services, and a clear hourly fee, the business was expanding its offering to barristers and management consultants.
IFG’s turnaround has not gone unnoticed. In euro terms the shares have surged 34% in the past year although that’s less than the astonishing 39% spike in Ireland’s stock market. Translated into sterling those gains would be lower, however.
Ollie Beckett, manager of the TR European Growth (TRG) investment trust, also owns IFG. It is one of three Irish stocks that account for just over 5% of the investment trust. Like Widdowson, Beckett hoped the company, which has a secondary listing in London, would shift its main listing to the UK capital, raising its profile with international investors and boosting its share price further.
‘I would love them to move to the UK like Greencore and get rerated,’ he said, recalling the food group whose stock (GNC) has trebled since switching from Dublin three years ago.
Widdowson noted that if IFG moved it could be comparable to Mattioli Woods (MTW), the Leicester-based wealth manager and employee benefits consultant whose shares have rallied 45% in the last 12 months, valuing it at £154 million.
Other investors in IFG, according to Thomson Reuters data, include Kabouter Management, a Chicago-based specialist in non-US smaller companies which holds 8.2%, and BMO Global Asset Management with 8%, whose F&C European Small Cap fund run by Sam Cosh has been a holder.
As well as IFG, Widdowson also owns wealth manager Brooks MacDonald (BRK) believing that both will benefit from the growth of defined contribution pensions, the trend towards self-managed investments and the ‘death of annuities’. The latter means more pensioners will remain invested in the stock market, increasing demand for the services of investment companies.
Widdowson’s second new stock was OMG (OMG), the Oxford-based AIM-listed technology group ‘which was trading at a considerable discount to its sum-of-parts valuation’ at the start of this year when he invested over £2 million.
In the past 12 months the shares, which are 29% held by Harwood Capital, manager of the Oryx International Growth (OIG) and North Atlantic Smaller Companies (NAS) investment trusts, have soared 86%. Recently they have been spurred by OMG’s sale of its defence software division to aerospace giant Boeing Company, a £17 million deal that is generating two special dividends for shareholders.
Not everything Strategic Equity Capital touches is golden. It bought over 3% of Tribal Group (TRBG) in early 2014 after shares in the provider of electronic student record systems fell after a disappointing trading update. It increased its stake to 7.5% during the August crash only for the company to issue a serious profits warning this month. The shares are down 58% over one year, valuing the company at £61 million.
Widdowson runs a focused £150 million portfolio of 19 stocks, mostly below £300 million in size, which are financially strong but whose growth potential has either stalled or been thwarted for structural reasons. Unlike most investment trusts, SEC does not use gearing – or borrowing – believing that its portfolio is sufficiently high risk without adding in leverage. Its biggest investment is in E2V Technologies (e2v), a high performance systems and equipment provider. Not surprising given its strong performance, SEC shares stand at a 5% premium to their net asset value.