Technology Investments And Product Diversification Will Attract New Clients

Key Takeaways

• Diversification and enhanced capabilities aim to boost revenue through new client attraction and improved asset inflow.
  
• Active management focus amid market shifts and team expansion could strengthen performance and profit margins.
  
• Strong capital position and dividends may pressure financial stability amid declining earnings, competition, and UK market reliance, affecting growth and profitability.

Catalysts

Liontrust Asset Management Plc is a publicly owned investment manager.

• Liontrust's diversification of its product range and strengthening of technological and data capabilities are positioned to improve future revenue growth by attracting new clients and better servicing existing ones, increasing overall asset inflow.
  
• The company is undergoing a business transformation program aimed at cost savings of £4.5 million annually, which should improve net margins by reducing operational expenses.
  
• The management's confidence in maintaining and potentially increasing dividends indicates expectations of continued profitability and possibly improved earnings per share, enhancing shareholder value.
  
• Liontrust's focus on active management with the expectation of market shifts favoring stock selection over passive investment strategies could lead to better revenue performance in the coming years, as they capitalize on their expertise in active management.
  
• The company's investment in scaling up its global innovation and fixed income teams is expected to lead to stronger performance and growth in assets under management, potentially translating into increased revenue and profit margins.

Liontrust Asset Management Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Liontrust Asset Management's revenue will decrease by -4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.1% today to 20.2% in 3 years time.
• Analysts expect earnings to reach £31.8 million (and earnings per share of £0.41) by about January 2028, up from £14.6 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as £17.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.0x on those 2028 earnings, down from 18.9x today. This future PE is greater than the current PE for the GB Capital Markets industry at 11.6x.
• Analysts expect the number of shares outstanding to grow by 6.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.08%, as per the Simply Wall St company report.

Liontrust Asset Management Future Earnings Per Share Growth

Risks

• The strong capital position and planned dividends may pressure financial stability if future earnings are insufficient to cover payouts, potentially impacting future retained earnings and financial flexibility.
  
• The company's revenue and adjusted profit before tax have decreased compared to the previous year, attributed in part to reduced AuMA and revenue margins, impacting short-term earnings growth.
  
• Increased competition from passive and alternative investment products may continue to suppress organic growth, reducing revenue potential.
  
• The company's strong reliance on UK equities, paired with geopolitical and economic uncertainties in the UK, may lead to asset outflows and impact revenue and profitability.
  
• Continued consolidation in the wealth management industry poses a risk by reducing the pool of decision-makers, which could negatively impact Liontrust's ability to attract inflows and grow revenue.

Valuation

• The analysts have a consensus price target of £6.04 for Liontrust Asset Management based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £10.5, and the most bearish reporting a price target of just £3.7.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £157.5 million, earnings will come to £31.8 million, and it would be trading on a PE ratio of 18.0x, assuming you use a discount rate of 7.1%.
• Given the current share price of £4.32, the analyst's price target of £6.04 is 28.4% 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.