2009 | 2010 | ||||||
Price: | 64.00 | EPS | $7.11 | $7.67 | |||
Shares Out. (in M): | 494 | P/E | 9.0x | 8.0x | |||
Market Cap (in $M): | 316 | P/FCF | 8.7x | 8.1x | |||
Net Debt (in $M): | 68 | EBIT | 58 | 61 | |||
TEV (in $M): | 434 | TEV/EBIT | 7.4x | 7.1x |
Sign up for free guest access to view investment idea with a 45 days delay.
Investment Thesis:
F&C Asset Management ("FCAM" or the "Company") is a good business with £92.7B assets under management ("AUM") that offers a large margin safety to intrinsic value with a catalyst. FCAM is undergoing a demerger (spin-off) as Friends Provident ("FP") will distribute its 52% ownership in FCAM to its shareholder on July 3rd. This should create a large supply/demand imbalance from FP's forced selling and top of an attractive business and current valuation. FCAM trades at a discount to its peers and is cheap on an absolute basis at 0.5% EV/AUM, 9.0x 2009E EPS, 6.9x 2009E EBITDA and a 9.4% dividend yield.
Business Overview:
FCAM is diversified investment management group that manages £92.7B of assets (as of March 31, 2009) for a combination of insurance (59% of AUM), institutional (28%) and retail clients (13%). FCAM primary focuses on distribution of its funds in the UK and Continental Europe. FCAM was formed through the merger of F&C Group and ISIS Asset Management (FP's in-house investment manager) in 2004. FCAM maintains a diversified and defensive asset base which includes: fixed income (62% of AUM), equities (21%), real estate (9%), money markets (6%), and alternatives (2%). FCAM manages FP's insurance assets (as well as Eureka's) under a long-term contract (until 2014) which guarantee that the Company is at least EBITDA breakeven. FCAM does suffer from a low average revenue fee margin (22.9 bps) due to its high percentage of insurance assets. Its average fee margin has grown at ~3% CAGR since 2005 as its fees on new business are 30% higher than those that outflow.
New Management
New CEO Alain Grisay is an impressive, action-oriented change agent from Belgium who now has an unfettered mandate to grow assets and create value for shareholders. Since joining F&C three years ago, he has shaken up the structure of the company by removing six layers of management and instating critical autonomy to fund level managers. His actions have influenced material improvement in F&C's relative performance versus peers (the majority of F&C's funds are performing better than the 75th percentile, and all are above the 50th percentile).
Spin-off Dynamics:
On July 6th, 2009 Friends Provident exited its 52% stake in F&C through a tax-free distribution to existing shareholders. The months preceding the demerger witnessed tremendous uncertainty and the shares suffered from the overhang of the impending share sale (F&C shares have declined more than 20% from when the equity markets reached their lows in early March, while, in contrast, its peers have rallied more than 20%). The markets concerns over flowback stemmed from the fact the FP life-insurance focused shareholder base would likely have no apparent interest in owning a pureplay asset manager with a market capitalization less than one fifth the size of the parent (the shareholders of FP received a distribution of less than $10 for every $100 invested in FP).
The most powerful dynamic at play by far since FP announced its intention to either sell or demerge its investment in F&C was the inability of important third party consultants to recommend the firm to its institutional and pension clients, due to the uncertainty over F&C's ability to retain key fund managers in a change of control event. Management has estimated this dynamic cost F&C at least ~£2B in new institutional mandates. Our diligence has suggested that third party consultant approval is absolutely critical to asset gathering. Last year every one of the twelve large consultants in the UK took F&C funds off of their 'Buy' lists. Since the March 2009 announcement that the F&C sale process had been terminated and the shares would be distributed in the form of a spinoff, six of the twelve leading firms of investment consultants have reinstated their 'Buy' recommendations, and we expect others to follow suit in the coming months. We anticipate the reinstatements will lead to better-than-peer asset growth, which should support a convergence of multiples as FCAM trades at a 40-80% discount on virtually every valuation metric.
Investment Merits:
GBP in mm, FYE Dec- | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 |
Total Revenue | 268.4 | 249.9 | 265.6 | 231.7 | 220.0 | 226.2 | 253.2 |
% Growth | (6.9%) | 6.3% | (12.8%) | (5.0%) | 2.8% | 12.0% | |
Operating Expenses | (147.5) | (156.4) | (180.1) | (166.9) | (156.9) | (160.0) | (169.6) |
% Growth | 6.0% | 15.2% | (7.3%) | (6.0%) | 2.0% | 6.0% | |
EBITDA | 120.9 | 93.5 | 85.5 | 64.8 | 63.1 | 66.1 | 83.6 |
% Growth | (22.7%) | (8.6%) | (24.2%) | (2.6%) | 4.7% | 26.5% | |
Depreciation | (3.2) | (3.0) | (3.7) | (4.7) | (4.9) | (5.1) | (5.3) |
Adj. EBITA | 117.7 | 90.5 | 81.8 | 60.1 | 58.2 | 61.0 | 78.3 |
% Margin | 43.9% | 36.2% | 30.8% | 25.9% | 26.5% | 27.0% | 30.9% |
Net Interest Expense | (10.0) | (0.8) | (2.9) | (3.8) | (5.0) | (5.0) | (5.0) |
Underlying EBT | 107.8 | 89.7 | 78.9 | 56.3 | 53.2 | 56.0 | 73.3 |
Taxes | (32.7) | (27.3) | (27.1) | (16.1) | (14.9) | (14.7) | (19.3) |
Rate | -30.3% | -30.5% | -34.3% | -28.6% | -28.0% | -28.0% | -28.0% |
Minority Interests | 0.0 | (1.0) | (1.6) | (1.9) | (3.2) | (3.4) | (4.4) |
Underlying Net Income | 75.1 | 61.4 | 50.2 | 38.3 | 35.1 | 37.9 | 49.6 |
Average Shares Out. | 472.4 | 479.3 | 484.2 | 492.7 | 494.3 | 494.3 | 494.3 |
Underlying EPS (p) | 15.90 | 12.80 | 10.37 | 7.77 | 7.11 | 7.67 | 10.04 |
% Growth | -19.5% | -19.0% | -25.0% | -8.6% | 7.9% | 30.9% | |
NOPAT (@ 28% tax rate) | 84.8 | 65.2 | 58.9 | 43.3 | 41.9 | 43.9 | 56.4 |
Total Debt | 219 | 263 | 258 | 293 | 293 | 293 | 293 |
Total Equity | 747 | 684 | 693 | 612 | 617 | 626 | 646 |
Capital Employed | 966 | 947 | 951 | 905 | 911 | 919 | 939 |
Total ROCE (incl. goodwill + intangibles) | 8.8% | 6.8% | 6.2% | 4.7% | 4.6% | 4.8% | 6.1% |
Total ROCE (excl. goodwill + intangibles) | 211.6% | 54.0% | 51.4% | 93.9% | 85.3% | 86.0% | |
Incremental ROIC (Δ NOPAT / Δ Capital) | -455.8% | -272.9% | -49.1% | -33.7% | 47.9% | 231.4% | |
Cash Flow | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 |
Adj. EBITA | 117.7 | 90.5 | 81.8 | 60.1 | 58.2 | 61.0 | 78.3 |
add: Depreciation | 3.2 | 3.0 | 3.7 | 4.7 | 4.9 | 5.1 | 5.3 |
less: Interest Paid | (10.0) | (0.8) | (2.9) | (3.8) | (5.0) | (5.0) | (5.0) |
less: Taxes Paid | (32.7) | (27.3) | (27.1) | (16.1) | (14.9) | (14.7) | (19.3) |
less: Distribution to Minority | 0.0 | (1.0) | (0.9) | (1.6) | (3.0) | (3.2) | (4.1) |
less: CapEx | (3.7) | (4.1) | (2.2) | (2.7) | (4.0) | (4.2) | (5.4) |
Total Adj. FCF | 74.6 | 60.3 | 52.4 | 40.6 | 36.2 | 39.0 | 49.8 |
Total Adj. FCFS (p) | 15.79 | 12.57 | 10.82 | 8.24 | 7.33 | 7.90 | 10.08 |
Dividends | (51.8) | (52.7) | (43.5) | (29.6) | (29.7) | (29.7) | (29.7) |
Cash Acquisitions | (0.6) | (0.2) | (0.1) | (29.1) | 0.0 | 0.0 | 0.0 |
AUM (GBP in bn) | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 |
Opening AUM | 124.3 | 131.0 | 104.1 | 103.6 | 98.6 | 96.5 | 101.6 |
+ Market Performance | 12.8 | 5.4 | 8.6 | (9.0) | 3.9 | 5.6 | 5.9 |
+ Net Outflows | (6.1) | (32.3) | (9.0) | (10.7) | (6.0) | (0.5) | 1.1 |
+ Acquisitions | - | - | - | 3.2 | - | - | - |
+ Currency Change | - | - | - | 11.4 | 0.0 | - | - |
Closing AUM | 131.0 | 104.1 | 103.6 | 98.6 | 96.5 | 101.6 | 108.6 |
Average AUM | 127.6 | 117.5 | 103.8 | 101.1 | 97.6 | 99.0 | 105.1 |
Peer Multiples | P/E | EV/EBITDA | |||
2009 | 2010 | 2009 | 2010 | ||
LSE:ADN | 15.6x | 12.3x | 15.2x | 11.3x | |
LSE:HGG | 13.6x | 11.4x | 9.7x | 8.4x | |
LSE:SDR | 17.0x | 14.4x | 9.6x | 8.5x | |
Peer Average | 15.4x | 12.7x | 11.5x | 9.4x | |
LSE:FCAM | |||||
Sellside | 9.0x | 8.0x | 6.9x | 6.5x | |
Internal | 9.0x | 8.3x | 6.9x | 6.6x | |
Premium to Peers | -42% | -34% | -40% | -30% | |
Market Stats | Intrinsic Value | ||||
Current Price (p) | 64.00 | ROCE | 15.0% | ||
Market Cap | 316.4 | Growth | 5.0% | ||
Net Debt (Cash) | 67.7 | Norm. 2011E NOPAT | 56.4 | ||
Minority | 49.6 | Fair Multiple | 13.0x | ||
Enterprise Value | 433.6 | Fair EV | 733 | ||
Dividend Yield | 9.4% | Fair Equity Value | 616 | ||
Mgmt Ownership | 1% | Fair Value per Share | 124.56 | ||
% Upside (Downside) | 94.6% | ||||
Curr Mkt. Cap./'11E EPS | 6.4x | ||||
Curr. EV / '11E NOPAT | 7.9x | ||||
In GBP
Market Statistics
P/E
EV/EBITDA
EV/Sales
Total Debt / Cap
5-yr Avg ROCE
5-yr Avg EBIT Margin
Peers
Ticker
Price
Mkt Cap
EV
09E
10E
09E
10E
09E
10E
Current
2004-2008
2004-2008
Aberdeen
LSE:ADN
£1.23
1,234
1,633
15.6x
12.3x
15.2x
11.3x
3.8x
3.5x
25.6%
6.3%
23.6%
Henderson
LSE:HGG
£0.94
771
853
13.6x
11.4x
9.7x
8.4x
3.3x
3.1x
38.6%
7.9%
20.7%
Schroders
LSE:SDR
£7.84
2,248
1,648
17.0x
14.4x
9.6x
8.5x
2.3x
2.2x
0.8%
8.8%
22.8%
F&C Asset Management
LSE:FCAM
£0.64
316
434
9.0x
8.0x
6.9x
6.5x
1.9x
1.9x
31.7%
2.2%
31.3%
In GBP
Peers
Div. Yield
Aberdeen
4.8%
BlueBay
4.6%
Henderson
7.2%
Man Group
9.4%
Schroders
3.7%
AVG
5.9%
FCAM
9.4%
Risks:
show sort by |
Are you sure you want to close this position F&C Asset Management?
By closing position, I’m notifying VIC Members that at today’s market price, I no longer am recommending this position.
Are you sure you want to Flag this idea F&C Asset Management for removal?
Flagging an idea indicates that the idea does not meet the standards of the club and you believe it should be removed from the site. Once a threshold has been reached the idea will be removed.
You currently do not have message posting privilages, there are 1 way you can get the privilage.
Apply for or reactivate your full membership
You can apply for full membership by submitting an investment idea of your own. Or if you are in reactivation status, you need to reactivate your full membership.
What is wrong with message, "".