Key Investment Highlights
 

1. The group provides advice to its customers related to wealth and investment management in the United Kingdom and Globally through a wide variety of services and solutions.

2. The company operates in one of the world’s largest wealth markets and is expanding continuously.

3. Quilter as on 31^st December 2019 on behalf of over 900,000 customers is managing around GBP 110.4 billion of investments.

4. The group is focused on building long-term relationships with its clients and constantly deliver award-winning service through quality advice.

5. The group is committed to renaming its companies in the next two years for better integration and smooth operational performance across the group.

6. Delivered strong revenue growth with decent adjusted operational performance and increased AuMA (Assets under management & administration) for the current period.

7. The company started reshaping strategically in the year 2019, and in 2020, it is looking to focus on scaling up business operations with higher growth trajectory.

8. Robust balance sheet with decent cash flow generation capabilities to drive shareholder returns.

9. Competitive products pricing, esteem quality in all spheres of the value chain to deliver superior customer solutions.

10. The share price is currently trading near its 52-week low, which makes an excellent opportunity to buy this value stock.
 

Quilter PLC (LON: QLT): Attractive Top Line Growth, Robust Balance Sheet Driving Shareholder Returns

Quilter PLC is a constituent of FTSE 250 index, and it is a British based financial service company engaged in wealth management, advisory and investments in the UK and Internationally.  The group has been managing approximately GBP 110.4 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^th April 2018 and has a secondary listing on the Johannesburg Stock Exchange (JSE).

Key Statistics



Asset Under Management by Business Segments
 

Advice and Wealth Management: This segment manages £45.8 billion of assets under management, as at 31 December 2019 and its segment includes:

1. Quilter Financial Planning

2. Quilter Private Client Advisers

3. Quilter Financial Advisers

4. Quilter Investors

5. Quilter Cheviot
 

Wealth Platforms: This segment manages £77.7 billion of assets under administration as at 31 December 2019 and its segment includes:

1. Quilter Wealth Solutions

2. Quilter International
 

Strategic Priorities for Transformation Change in light of Key Performing Indicators (KPI)
Priorities

1. Ensuring the delivery of incremental investment returns, enhance customer services and customer outcomes.

2. Expanding the advisory division along with the enhancement of investment solutions.

3. Deliver the transformation in the UK platform to yield greater functionality and capability.

4. Ensuring efficiency and reduction of cost and complexity to grow the business consistently.

 

KPIs in 2019
 

1. Total integrated net flows stood at GBP 2.6 billion.

2. Operating margin was 29%.

3. Adjusted profit before tax stood at GBP 235 million.

4. Total shareholder return was 42%.

5. IFRS profit before tax was GBP 141 million.
 

Significant Updates of the Recent Past
 

1. 16^th April 2020: Quilter PLC has signed the C-19 Business Pledge and announced several initiatives to support that including £100,000 donation to the National Emergencies Trust and supporting stakeholders.

2. 9^th April 2020: QLT has announced the repurchase of ordinary shares from J.P. Morgan Equities South Africa Proprietary Limited. The group has repurchased 2,210,265 of ordinary shares in aggregate.

3. 22^nd January 2020:The group has acquired Charles Derby Group in February 2019 and now have rebranded this vertical to Quilter Financial Advisers, as a step towards integrated and unified branding.
 

Top Shareholders 
 
 

Financial Highlights – Strong Revenue Growth in FY2019 (ended 31^st December 2019)

(Source: Annual Report, Company Website)
 

1. For the financial year ending 31^st December 2019, AuMA (Assets under Management & Administration), excluding QLA, surged by 13 per cent to GBP 110.4 billion versus GBP 97.7 billion in the financial year 2018.

2. The companydelivered significant strategic progress, underlying profit performance ahead of market anticipations and capital return of GBP 375 million. 

3. Adjusted profit before tax (including Quilter Life Assurance (QLA)) surged by 1 per cent to GBP 235 million in the financial year 2019, with stable revenue, backed by continued cost discipline across the business. 

4. The adjusted diluted earnings per share (EPS) for the financial year 2019 was 11.3 pence, including QLA versus adjusted diluted earnings per share of 13.5 pence in FY2018.

5. Net Client Cash Flow (NCCF) for 2019 was stated at £0.3 billion. The Group’s revenue margin from continuing business of 55 bps stayed consistent with the previous year.
 

Financial Ratios: Strong Profitability Margins versus Previous Year 
 
 

Gross margin reported was 77.8 per cent for the financial year 2019 and stood higher than the last year gross margin data of 68 per cent. The reported EBITDA margin of 19.2 per cent for the FY2019 stood higher than the EBITDA margin of 8.2 per cent in FY2018. Operating margin reported was 13.5 per cent for the financial year 2019, up from the last year data but lower than the industry median of 30.7 per cent. The reported Pretax margin of 3.9 per cent for the FY2019 stood higher than Pretax margin of negative 1.7 per cent in FY2018. On leverage front, the debt-equity ratio of the Quilter Plc’s was 0.16x, which was higher as compared to the industry median of 0.10x.

Share Price Performance


Daily Chart as on 20th April 2020, before the market close (Source: Thomson Reuters)

On April 20, 2020, at the time of writing (before the market close, at 11:25 AM GMT), Quilter Plc shares were trading at GBX 113.30, down by 2.58 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 178.95/GBX 97.60.

Bullish Technical Indicators

From the technical standpoint, its shares were trading well above its short-term support level of 25-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further. 14-day RSI is currently hovering in an oversold zone and carry the potential to trigger an upside bump in the stock price.

Valuation Methodology

Method 1: Price/Earnings Approach (NTM)
 


To compare Quilter Plc with its peers, Price/Earnings multiple has been used. The peers are AJ Bell Plc (NTM Price/Earnings was 37.84), Hargreaves Lansdown Plc (NTM Price/Earnings was 28.75), St. James's Place Plc (NTM Price/Earnings was 16.91), TP ICAP Plc (NTM Price/Earnings was 9.94) and Georgia Capital Plc (NTM Price/Earnings was 6.60). The Average of Price/Earnings (NTM) of the company’s peers was 20.00x (approx.)

Method 2: Price/Cash Flow (NTM) Approach



To compare Quilter Plc with its peers, Price/Cash Flow multiple has been used. The peers are Hargreaves Lansdown Plc (NTM Price/Cash Flow was 31.75), Intermediate Capital Group Plc (NTM Price/Cash Flow was 23.37), Jupiter Fund Management Plc (NTM Price/Cash Flow was 17.04), Schroders Plc (NTM Price/Cash Flow was 15.62) and AXA SA (NTM Price/Cash Flow was 6.54). The Average of Price/Cash Flow (NTM) of the company’s peers was 18.86x (approx.)

Valuation Metrics


(Source: London Stock Exchange)
 
As on 31st March 2020, the Price to Book and EV to EBITDA multiple of the Quilter Plc was around 1.1x and 0.1x, respectively, which was lower as compared to the industry multiples. It reflects, shares are undervalued against its peers. 

Dividend Yield 


(Source: Thomson Reuters)

Quilter Plc has a dividend yield of 4.47 per cent, which is higher than the industry dividend yield of 3.67 per cent. This needs to be considered in view of the recent correction in the stock price.

Quilter Plc Vs FTSE Mid 250 Index (5 Years)


(Source: Thomson Reuters)

In the last five years, Quilter Plc share price has delivered negative 18.76 per cent returns as compared to negative 23.43 per cent returns of FTSE-Mid 250 index, which shows that the stock has outperformed the index during the last five years.

Total Return 5 Years


(Source: Thomson Reuters)

Quilter Plc has a total return of negative 6.87 per cent in the last five years versus the total return of FTSE All share of negative 19.09 per cent for five years period.
 
Triggers for Future Growth
 

1. The news pension reforms in the UK need solutions for retirement, for which group has been offering savings and investment life cycle with a fair and transparent business model.

2. It has a multichannel proposition with integrated flows and long-term adviser and customer relationships.

3. Strong balance sheet position with low gearing to generate substantial cash and shareholder returns.

4. The group has almost completed the re-platforming project. The new integrated platform shall yield expansion in business capabilities.

5. Changing demographics towards ageing population create a demand for wealth solutions.

6. 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).
 

 Growth Prospects and Risk Assessment
 
The company, despite increasingly challenging market conditions, generated strong revenue with increased AuMA in FY2019. 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. The group also plans to expand its team of advisers and investment managers to deliver better solutions to its customers. The risk of an adverse change in the level of volatility of market prices also persists in an uncertain environment, which may result in loss of earnings or reduced solvency.
 
Business Outlook Scenario

QLT group has performed resiliently during the early part of 2020 and flow trends for UK business was also consistent; however, there was a decline in NCCF (net client cash flow) inflow under Quilter Cheviot vertical. Moreover, the uncertainties imposed by Covid-19 has been impacting the outlook for 2020 and the group is uncertain about the NCFF and revenue streams. On the other hand, the group’s optimisation plan is there in place to ensure cost savings. The group also received an award for ‘FTAdviser Top 100 Financial Adviser’ in 2019.  Among the priorities for 2020, the group is focused on offering products that are:
 

1. Competitively priced at every point of the value chain.

2. Continuously driving investment performance and outcomes for customers.

3. Maintain a low level of customer complaints while satisfying the customers’ needs.
 

Overall, the group is confident on the long-term opportunities despite weak short-term market sentiments as the group is moving well towards creating a unified and integrated platform.

During the early part of 2020, the company’s performance was broadly in line with the expectations. Markets were primarily resilient; the group was witnessing a positive tone from their advisors and clients and the overall NCCF flow trends for the United Kingdom business were coherent with the trends seen in late 2019. The sharp Coronavirus (COVID-19) induced market correction beginning in late February 2020 has formed a level of uncertainty as to the guidance of 2020. At this stage, it is too early to determine the impact of this situation on NCCF, revenues, and investor sentiment. The optimisation programme will provide the cost savings that are implanted in the operating margin targets for the financial year 2021. In 2020 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.

Despite the short-term market sentiment, the group stay well-positioned in the upcoming year. Presently, the group is concentrated on delivering the second and final migration to a high-quality outcome in the summer. The group’s new platform will bolster the cohesion between the different business capabilities and be a catalyst for faster growth.

Over the course of 3 years (FY16 - FY19), the company’s revenue surged from GBP 981 million in FY16 to GBP 1,150 million in FY19. Compounded annual growth rate (CAGR) stood at 5.44 per cent.

Based on the decent prospects and support from the valuation as done using the above two methods, we have given a “BUY” recommendation at the current price of GBX 112.50 (as on 20^th April 2020, before the market close at 11:26 AM GMT), with lower-double digit upside potential based on 20.00x Price/Earnings (approx.) on FY20E earnings per share (approx.) and 18.86x NTM Price/Cash flow(approx.) on FY20E cash flow per share (approx.).
 
 
*All forecasted figures and Peer information have been taken from Thomson Reuters

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