Overview

Quilter PLC (QLT) is a British based financial services company engaged in wealth management services and has three most significant offices in London, Southampton and on the Isle of Man. The company was established following the decision by Old Mutual to separate its four strong businesses into independent, standalone companies, one of them being Old Mutual Wealth Management Limited. The company's name was subsequently changed in March 2018. The group was listed on the London Stock Exchange (LSE) on 25 June 2018 and has a secondary listing on the Johannesburg Stock Exchange (JSE). The company is a constituent of the FTSE 250 index.

The group operates in one of the largest wealth markets in the world and is a leading provider of advice and wealth management services both in the UK and internationally. As of 31 December 2018, the company managed £109.3 billion of funds on behalf of over 900,000 clients. The company aims at giving customers and financial advisers choice and flexibility in how they choose to access the offered solutions and services: through its own financial advisers (the advised channel), or through a third-party adviser (the open market channel). The company provide three essential wealth management services: Financial planning and advice, platforms or wrappers and simple investment solutions.

Management

Glyn Jones is the Chairman at Quilter and was appointed on November 2016. He also chairs the Remuneration and Corporate Governance and Nominations Committee and is a member of the Remuneration Committee. Paul Feeney is the Chief Executive Officer; he was appointed in August 2012. Chief Financial Officer of the company is Mark Satchel, he was named in March 2019 and has over 20 years of experience within the industry.

Operating Segments

The Group's operating segments comprise Advice and Wealth Management and Wealth Platforms, while Head Office includes certain revenues and central costs that are not allocated to the segments. The Advice and Wealth Management comprises Quilter Investors, Quilter Cheviot Limited and Quilter Financial Planning, including Quilter Private Client Advisers, and focuses on providing investment solutions in the UK multi-asset market, discretionary investment management in the United Kingdom and financial planning advice and financial solutions. Wealth Platforms comprises Quilter Wealth Solutions (‘QWS') and Quilter Life Assurance (‘QLA'), and Quilter International cross-border businesses, and focuses on advising locals and high net worth and affluent local customers and expatriates regarding wealth management products and services in the UK.

Key Statistics

Top Shareholders

(Source: Thomson Reuters)

Key Financial Metrics (FY 2018)

(Source: Company Filings)

Key Financial Highlights (FY 2018)

Despite the challenging external environment - investor uncertainty arising from Brexit and other geopolitical issues – the group reported that the Net Client Cash Flow ("NCCF") for the Group, excluding Quilter Life Assurance, was £4.7 billion, decreased by 10% and representing 5% of opening AuMA, in line with the company's medium-term target, while total NCCF was £2.7 billion, in comparison to NCCF of £6.3 billion reported in FY 2017. A 4% decline was reported in AuMA to £109.3 billion, mainly due to negative market movements of £7.8 billion. Integrated flows (excluding Quilter Life Assurance) were also down by 10% from 2017 to £4.7 billion. Adjusted profit before tax, which reflects the underlying performance of the company and is an essential part of the decision-making process, grew 11% over the prior year to £233 million, against £209 million in 2017, mainly due to higher revenue, while IFRS profit before tax from continuing operations was £5 million. Net management fee increased to £647 million, reporting a rise of 9% over £591 million reported in 2017. Other revenue rose by 3% to £141 million, against £137 million reported in 2017, driven by growth in advisory fees. The operating margin was reported at 30%, increasing by 100bps in 2018. IFRS profit after tax was £488 million, an increase of 211% over the year. Basic EPS was 26.6 pence, compared to 8.6 pence in 2017, while adjusted diluted EPS increased by to 12.3 pence against 10.7 pence in 2017. The net asset value was £2.0 billion at 31 December 2018, vs £1.1 billion last year. In line with the company's dividend policy, a final dividend of 3.3 pence per share was announced.

Financial Ratios

(Source: Thomson Reuters)

Ratios Commentary 

The group's profitability margins declined significantly in the first half of 2018, though the decline reflected the normalisation of margins. Net margins, was negative in the last year, became positive and is gradually increasing towards the industry median. The times interest ratio declined the HI FY2018 and is moving towards the industry median. Though the leverage ratio declined considerably during H1 2018, they were still significantly more than the industry. The company's asset turnover ratio was less than the industry, signifying a lot of room for improvement in asset utilisation.

Valuation Methodology

Method 1: Price/Cash Flow Multiple Approach (NTM)

Method 2: Price/Earnings Multiple Approach (NTM)  


To compare Quilter with its peers, Price/Earnings multiple has been used. The peers are Legal & General Group PLC (NTM P/E was 8.79), Standard Life Aberdeen PLC (NTM P/E was 11.59), Discovery Ltd (NTM P/E was 14.91), St. James's Place PLC (NTM P/E was 22.47) and Hargreaves Lansdown PLC (NTM P/E was 31.33). The median of Price/Earnings (NTM) of the company’s peers was 14.91x.
 

*All forecasted figures and peers have been taken from Thomson Reuters.

Share Price Commentary


(Source: Thomson Reuters)

On 14th March 2019, at the time of writing (after market close), QLT shares quoted at GBX 140.44, up by 1.04 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 147.45/GBX 109.30. At the time of writing, the share was trading 4.75 per cent lower than its 52w High and 28.49 per cent higher than its 52w low. Stock’s average traded volume for 5 days was 5,316,380.80; 30 days - 2,713,259.07 and 90 days - 2,970,929.32. The average traded volume for 5 days was up by 95.94 per cent as compared to 30 days average traded volume. On the valuation front, the stock was trading at a trailing twelve months PE multiple of 13.4x as compared to the industry median of 12.2x. The company’s stock beta was 1.23, reflecting more volatility as compared to the benchmark index. The outstanding market capitalisation was around £2.67 billion.

Risks Assessment and Growth Prospect

The company, despite increasingly challenging market conditions, performed well in FY 2018 and reported strong results. The resilience in the company's integrated flows demonstrated that its business model is generating real traction with customers, though deteriorating investor sentiment over the course of the year made net client cash flows more challenging. In 2019 the company will implement its new UK platform and will make further progress on its optimisation plan, helping to drive up its operating margins in subsequent years. The group also plans to expand its team of advisers and investment managers to deliver better solutions to its customers. In short-term, the company will have to face serious challenges, not least uncertainties from Brexit which will have an impact upon investors' appetite to put new money to work. The risk of an adverse change in the level or volatility of market prices also persists in an uncertain environment, which may result in loss of earnings or reduced solvency. The company's results may be adversely affected by conditions in global capital markets, volatility and strength of debt and equity markets and inflation.

Conclusion

The resilience of the company's integrated flows signifies a robust business model. The new UK platform will further drive growth and to improve margins. As the political risks arising from Brexit decreases, the investor confidence will also improve and will present a great opportunity to the company. Based on a strong prospect supported by valuation done using the above two methods, we have given a BUY recommendation at the closing price of GBX 140.44 (as on 14th March 2019) with single-digit upside potential based on 12.8x NTM Price/Cash Flow on FY19E cash flow per share and 14.91x NTM Price/Earnings on FY19E Earnings per share.

Note- GBp or GBX are interchangeably used for Pence Sterling. 

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 website 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. Our publications are NOT a solicitation or recommendation to buy, sell or hold.