Quilter PLC (LON: QLT) – Delivering resilient financial performance, strategic progress, and operational improvement despite a challenging environment.

British based, Quilter PLC is a FTSE-250 index listed Financial Service Company, which is engaged in wealth management, advisory and investments in the UK and Internationally.  As of 30 September 2020, it has been managing approximately GBP 109.5 billion of investments for over 9 lacs customers. It is divided into business segments - Wealth Platforms and Advice & Wealth Management. The Company provides three essential services – Financial advice, Investment solutions and Wealth platforms. Its major offices are located in Southampton, London, and on the Isle of Man. The group was listed on the London Stock Exchange (LSE) on 13 April 2018 and had a secondary listing on the Johannesburg Stock Exchange (JSE).

On 10 March 2021, the Company expects to provide full-year results for FY20.

Growth Prospects and Risk Assessment

QLT is a leading UK wealth manager Company with nearly £100 billion of customer assets. It has a multi-channel proposition with integrated flows and long-term adviser and customer relationships. It has competitive products, pricing, and quality with a combination of scale, capabilities, and market position. It has a strong balance sheet position with low gearing to generate substantial cash and shareholder returns. Moreover, the Company has almost completed the re-platforming project. The new integrated platform shall yield expansion in business capabilities. Apart from platform migration scheduled in Q4 FY20, the integration of Lighthouse acquisition is progressing well. Adjacently, the changing demographics towards ageing population create a demand for wealth solutions.

However, Covid-19 pandemic has been putting pressure over gross inflows. Moreover, the challenging external environment could impact the funds under management and the ability to attract new advisers. Furthermore, the volatility in the financial markets can negatively impact solvency, capital, and liquidity position of the Company. There are also certain risks and uncertainties associated with administrative complexity, increased competitive pressure, complying with changing regulations, external threat to security systems, among others. 

Industry Outlook Dynamics

As per the publication from Markets and Markets, the wealth management platform is projected to reach US$3.20 billion by 2022, which was US$1.52 billion in 2016, representing a CAGR of 13.4% between 2016 to 2022. The major drivers for growth are rise in the number of high net worth individuals, compliance with strict regulations, and digitalisation and process automation. 

It is noteworthy that regulatory and fiscal changes driving disruption into the market. The pension reform is providing an opportunity for consolidation and flexibility to manage retirement assets. Moreover, government initiatives are supporting auto-enrolment into pensions. MiFID II is further increasing transparency for customers.

 (Source: Refinitiv, chart created by Kalkine Group) 

After understanding the industry dynamics, we will analyse some key fundamental and shareholders statistics of Quilter PLC

Recent Developments

On 22 October 2020: The Company announced that it had purchased the 67,564 ordinary shares of 7 pence each through J.P. Morgan Securities plc.

On 20 October 2020: Quilter Investors announced that it would appoint Premier Fund Managers Limited as manager of the Quilter Investors Diversified Bond Fund and the Quilter Investors Corporate Bond Fund. 

A Glimpse of Business Segments as reported in H1 FY2020

(Source: Company Website)

Q3 FY20 Trading Update (as on 21 October 2020)

(Source: Company Website)

• Despite a more challenging market backdrop, the Company has reported a steady performance, with substantial improvements in the third-quarter net inflows against the corresponding period of the last year.
• At the end of September 2020, the Assets under Management and Administration (AuMA) stood at £109.5 billion, which was ahead of the 30 June 2020 closing position. This was supported by good investment performance from the Wealth Select and Cirilium Active ranges in Q2 and Q3 of FY2020.
• However, the net flows for Q3 FY20 were seasonally weaker than the first half of 2020, due to the factors - re-emergence of Brexit related concerns towards the end of the quarter, the Covid-19 induced economic slowdown and the planned platform migration in the final quarter.
• The gross sales for Q3 FY20 were broadly stable at £2.7 billion (2019: £2.8 billion), with year-to-date net inflows of £1.2 billion (2019: £0.2 billion net outflow).
• In the three months and nine months ended 30 September 2020, total integrated net flows were stable at £0.4 billion and £1.8 billion, respectively, which continues to demonstrate the strength of the Quilter business model.
• The Company witnessed a solid Quilter Investment Platform, with gross flows of £1.2 billion and stable net flows of £0.1 billion (which was ahead of major migration in November 2020).
• Further, the strategic plans are well-positioned with the major migration of assets to the new platform from the existing platform. The major second migration was confirmed with clients and advisers to be completed in the last week of November 2020.
• The capital return programme stays on track, with the current trading continues to be in line with the expectations.
• The structural optimisation and tactical cost-saving plans were on track to achieve expected benefits in the financial year 2021.

Financial Ratios for the period H1 FY2020

Share Price Performance Analysis

On 26 October 2020, at the time of writing (before the market close, at 8:05 AM GMT+1), Quilter Plc shares were trading at GBX 129.85, down by 0.87% against the previous day closing price. Stock 52-week High was GBX 178.95 and Low of GBX 97.60, respectively.

In the last two years, QLT’s stock price has delivered a positive return of ~14.66% return as compared to negative ~2.15% of FTSE-250 index and negative ~15.97% return of FTSE All Share Financial index, which shows that the stock has outperformed the benchmark index and the sector during the last two years.

From the technical standpoint, 90-day RSI is currently supporting an upside move, which means the stock price could increase in the short term. The Company’s stock has delivered a positive return of around 11.11% in the last six months.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Peers used in the valuation methodology (Price/NTM Earnings)

 

Business Outlook Scenario

The investment platform transformation projected remained on track and 80% of assets are expected to be migrated by year-end. On 16 October 2020, the Company has already completed £375 million of share buyback. Moreover, the tactical cost savings and structural optimisation plans progressed well to provide expected benefits in FY21. However, due to the economic impact of the Covid-19 pandemic and geopolitical uncertainties, QLT would remain cautious in the short run, and therefore, mortgage and protection business is likely to be muted during H2 FY20 and further margin erosion is expected.

Notwithstanding short-term uncertainties, the Company is well-positioned with secular long-term growth prospects. The first platform migration in early February was a key milestone for the business. Each of its business is well-positioned to drive growth in the long-term. The new platform would also bolster the cohesion between different business capabilities and would work as a catalyst for faster growth.

 (Source: Presentation, Company Website)

 

Considering the improved year-on-year third-quarter net inflows, a strong rebound in AuMA, continued robust solvency position, solid capital position versus peers, significant Platform migration scheduled for Q4 2020, added new investment managers and support from the valuation as done using the above method, we have given a “BUY” recommendation on Quilter at the current price of GBX 129.85 (as on 26 October 2020, before the market close at 8:05 AM GMT+1), with lower-double digit upside potential based on 22.77x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

---

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.

Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.