River and Mercantile Group PLC (RIV) is a London, the United Kingdom-based asset management and advisory services focussing on consulting and advisory to fiduciary and fund management. Business operations are spread across: Fiduciary Management Division, Derivative Solutions Division, Equity Solutions Division and Advisory Division.

Trading Update - Nine Months Ended March 31, 2019
Fee-earning AUM/NUM surged by 7 per cent to £36.3 billion. Gross sales were stood at £4.1 billion on March 31, 2019.For the period 9M FY19, reported net sales were £1.7 billion, equivalent to more than 5 per cent of opening AUM/NUM, including £1.0 billion from Institutional Equity Solutions and £1.2 billion from Fiduciary Management. Performance fees were projected to be around £6.9 million, of which £4.9 million from Fiduciary Management and £2.0 million from Equity Solutions. The company’s advisory services fees were estimated to be around £7.5 million.

Financial Highlights (H1 FY 2019, £’000)

(Source: Interim Report, Company Website)

The company’s total revenue rose from £39.02 million in H1 FY2018 to £39.10 million in H1 FY2019, due to the significant impact on revenue in terms of net management fees which were increased by 4 per cent. Adjusted profit after tax stood at £8.4 million, as compared to £9.6 million in H1 FY18, driven by an increase in revenues in the recent period which were offset by the cost of external research provision post?MiFID II and cost of investments. Statutory net profit after tax declined from £9.1 million in H1 FY2018 to £6.7 million in H1 FY2019.Adjusted basic earnings per share stood at 10.49 pence against the 11.99 pence in H1 FY 2018. The company’s Board has declared an interim dividend per share of 6.3 pence, of which special dividend per share of 2 pence and related to net performance fees.

Share Price Performance

Daily Chart as at April-29-19, after the market closed (Source: Thomson Reuters)

On 29th April 2019, River and Mercantile Group PLC share closed at GBX 257, up by 4.90 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 323.43/GBX 210.33. The company’s stock beta was 0.39, reflecting lower volatility as compared to the benchmark index.

Valuation Methodology

*All forecasted figures have been taken from Thomson Reuters.

Key Risks
Growing uncertainties around the Brexit entail the key risk for the company as a major share of the group’s revenue comes from the UK only. So, in a no-deal Brexit scenario or any disorderly Brexit, River and Mercantile Group PLC can be impacted significantly because of devaluation in the value of the sterling pound against the major currencies.

Conclusion
As shares of River and Mercantile Group PLC were trading considerably above 30-day and 60-day simple moving average and at the current price level,the stock was quoting significantly above its 52w low price level, we expect stock has the potential to move up further from the current price level. River and Mercantile Group PLC hasstrong fundamentals and is backed by efficient management, and huge market opportunity will help the group to scale up their foot-prints and acquire more customers. It has been very encouraging to see thecontribution to growth from both investment performance and net rebalancing. Based on the above rational and valuation done using the above methodology and considering the risks associated with the business we have given a "Speculative BUY" recommendation at the closing price of GBX 257 (as on April 29, 2019) with single-digit upside potential, based on 14.07x NTM Peers Average Price-to-Earnings multiple (approx.) on FY19E EPS (approx.).

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