Outsourced Multi Asset Solutions Will Drive Strong Long Term Upside Potential

Catalysts

About Tatton Asset Management

Tatton Asset Management provides low cost, scalable discretionary fund management and support services to independent financial advisers, helping them deliver consistent investment outcomes to mass affluent clients.

What are the underlying business or industry changes driving this perspective?

• Rapid expansion of model portfolio solutions across adviser platforms, with the proportion of advised assets expected to move from roughly one fifth toward closer to half, positions Tatton to capture outsized inflows and support continued revenue growth.
• Structural development in the independent financial adviser market, including new firm creation and consolidation into more scalable, professionally run businesses, may deepen Tatton’s 1,000 plus IFA relationships and increase average assets per account, contributing to higher assets under management (AUM) and earnings.
• Increasing regulatory and operational burden on advisers is accelerating the shift from in-house portfolio construction to outsourced discretionary fund managers. In this environment, Tatton’s 15 basis point, high-margin proposition and performance record may support further margin expansion and profit growth.
• Enduring demand for outcome-focused, risk-controlled multi-asset solutions, including ethical and hybrid active passive portfolios, supports Tatton’s ability to maintain its positioning on performance and pricing, which in turn can contribute to resilient net flows and solid net margins.
• Ongoing migration of wealth into tax-efficient wrappers on adviser platforms, combined with Tatton’s platform-agnostic model and strong balance sheet, may support steady organic AUM development in varying market conditions and translate into increased earnings and dividend capacity.

Assumptions

This narrative explores a more optimistic perspective on Tatton Asset Management compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Tatton Asset Management's revenue will grow by 13.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 34.6% today to 37.7% in 3 years time.
• The bullish analysts expect earnings to reach £27.0 million (and earnings per share of £0.4) by about December 2028, up from £17.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 30.0x on those 2028 earnings, up from 24.2x today. This future PE is greater than the current PE for the GB Capital Markets industry at 12.6x.
• The bullish analysts expect the number of shares outstanding to grow by 1.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.34%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The planned termination of the GBP 3.5 billion Perspective mandate in January 2026, which currently contributes GBP 333 million of flows and GBP 800,000 of revenue in the period, creates a structural headwind that could be hard to fully replace with organic inflows or Absolute-related acquisitions. This could put long term revenue growth and earnings expansion at risk.
• The MPS market is highly competitive, with over 220 providers and some willing to undercut Tatton’s 15 basis point fee. The FCA’s upcoming MPS review is expected to focus on pricing fairness, so sustained fee pressure or adverse regulatory findings could compress the current 51% group margin and 64% Tatton margin and slow earnings growth.
• Tatton’s growth strategy is heavily exposed to adviser platforms, the health of the IFA community and tax advantaged savings wrappers. Any long term regulatory or fiscal changes that dampen platform flows, constrain pension and ISA incentives or reduce IFA capacity could weaken net flows, dampen AUM growth and limit future revenue.
• The business model depends on continued outperformance and consistency of multi asset portfolios relative to peers. Future periods of market volatility, style reversals or misjudged asset allocation could erode performance rankings and brand perception, resulting in weaker net flows, lower AUM growth and pressure on operating margins.
• Paradigm is becoming a subscale contributor at just 13% of income and 7% of profit, and management has signalled potential divestment or consolidation of this segment. Mis execution of any strategic change, or a downturn in mortgage and consulting activity, could reduce diversification, increase earnings volatility and constrain profit growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Tatton Asset Management is £10.0, which represents up to two standard deviations above the consensus price target of £8.36. This valuation is based on what can be assumed as the expectations of Tatton Asset Management's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £10.0, and the most bearish reporting a price target of just £7.2.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be £71.6 million, earnings will come to £27.0 million, and it would be trading on a PE ratio of 30.0x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of £6.72, the analyst price target of £10.0 is 32.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.