AFH Financial Group Plc – Trading Update

AFH Financial Group Plc – Trading Update

The Board of AFH, a leading financial planning led wealth management firm, is pleased to provide the following update on trading for the twelve months ended 31 October 2019, a period reflecting a fifth successive year of strong growth and increased profitability.

 

Financial highlights

 

·    Revenues for the year expected to exceed £74m, (2018: £50.6m), of which over £29m was generated through new business

·    Continued expansion of EBITDA margin, reflecting operational gearing

·    Underlying* EBITDA expected to exceed £17m, (2018: £10.4m)

·    Funds under Management ("FUM") reached £6.0bn in October 2019 (2018: £4.4bn)

·    Fifth successive year of increased Earnings per Share attributable to shareholders, which supported a 50% increase in the dividends paid during the year

·    Board remains confident of the Company's prospects and achieving its stated aspirations of revenues of £140m, underlying* EBITDA margin of 25% and £10bn Funds under Management

 

* Underlying excludes the one-off exceptional financing costs of the CULS.

 

Confidence in strategy and outlook

 

·    8 acquisitions completed during the year, total capped consideration of £30m

·    Integration of current and prior year acquisitions continued in line with the AFH model

·    Board to focus on organic growth and cash generation going forward, as reported in September 2019

·    Protection revenue model adjusted from 1 November 2019 to ensure greater cash generation and reduced working capital needs

·    Cash balances as at 31 October 2019 of £11.9m

 

During the last twelve months, the Company has enjoyed strong organic growth, with a significant increase in its recurring fee income, and has completed the acquisition of 8 businesses, extending both the Company's size and geographical footprint. Total revenues for the full year are expected to exceed £74m (2018: £50.6m), of which approximately £6.5m was generated from acquisitions completed during the year.

 

The Company continued to generate operational efficiencies which, together with the growth of the business, is expected to enable AFH to report both increased EBITDA per share together with a further increase in the EBITDA margin. This margin increase is the fifth consecutive year of margin enhancement and represents a significant move towards our aspirational target of a 25% EBITDA margin.

 

Significant growth continues to be driven by organic new business generation. Of the expected total revenue of £74m for the year over £40m was represented by recurring business whilst over £29m was new business written by our advisers. Over £450m of gross funds were received from new and existing clients, representing year on year growth above 10%. As previously reported net outflows, including pension drawdown, continue to be below 2% of total Funds under Management. In addition, eight acquisitions were completed during the year adding over £1bn to the Company's FUM.

 

During the year the Company paid over £8m in deferred earn out consideration in respect of acquisitions from prior years reflecting the continued performance of those businesses.

 

The Company raised £15m (gross) in July 2019 through the placing of 4% Convertible Unsecured Loan Stocks ("CULS") 2024, with a five-year conversion price of 420p, introducing a number of new institutional investors to the Company. Over 65% of the funds raised from the CULS were used to make new acquisitions during the fourth quarter, which are expected to drive future earnings per share.

 

As indicated to the market at the time of the CULS placing the Company has looked at other forms of financing and following the year end, entered into a five-year £12 million facility agreement with HSBC. No drawings have been made on this facility.

 

The Board remains confident of the prospects for further profitable expansion and reaffirms its three to five year aspirations of achieving Funds under Management of £10bn; Revenues per annum of £140m; and Underlying EBITDA margin of 25%.

 

 

Commenting, Alan Hudson, Chief Executive of AFH, said:  

"The performance of AFH over the course of the year demonstrates the success of the Group's strategy and business model. We maintained our strong levels of growth, both organically and through acquisitions, and continue to deliver on our ambitious targets. We have seen five consecutive years of growth and profitability since joining AIM as well as solid increases in FUM with low withdrawal rates and will continue to drive for further operational efficiency and increased margins going forward.

 

"The recent refinement of our model to place a greater focus on cash generation in these uncertain political and economic times will put AFH in a strong position as we enter the new year, focusing on organic growth and paying down our deferred earn-outs. This will free up significant cash flow in the medium term and enable us to continue to deliver on our goals without requiring further funding from the equity markets. We have consistently delivered strong levels of organic growth outside of our buy and build strategy over the last few years and are confident in our ability to deliver further value to shareholders following this change of focus.

"Demand for advisory services in the UK continues to grow - the population is living and working for longer and there exists a significant savings and advice gap. The directors believe that AFH is well placed to benefit from this trend. Our client focussed approach and our growing AFH community creates a commercial advantage for our clients when compared to both small IFAs and traditional wealth managers. Investment made to digitise parts of the business, as well as diversification into our complementary protection broking business over the past few years, have helped the Group to achieve its goals in a less than benign macro-economic environment, leaving us in good stead to continue on our growth trajectory.

"Given the strong performance over the year it has been frustrating that the valuation multiple of the Group has fallen significantly below that of the sector average in spite of our continued growth and increased shareholder return. We continue to focus on delivering shareholder value through the profitable growth of the business.

"We look to the future with confidence to continue building AFH into the leading financial planning led wealth manager in the UK."

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