Dynamic Hedging And Private Markets Will Shape Global Trends

Key Takeaways

• Expanding risk management and tailored private market solutions are strengthening recurring revenue and deepening institutional client relationships, supporting diversified and stable growth.
  
• Strategic focus on data-driven technology, cost efficiency, and differentiated offerings is enhancing operational leverage, margins, and long-term profitability.
  
• Heavy client concentration, shrinking margins, slow private market growth, and delayed tech upgrades threaten both short-term profits and long-term revenue stability.

Catalysts

Through its subsidiaries, provides currency and asset management services in the United Kingdom, North America, Continental Europe, Australia, and internationally.

• Record's growth in risk management products, especially passive and dynamic hedging, aligns with increased globalization of investment portfolios and ongoing demand for currency risk management-a secular expansion of their addressable market that should support management fee and recurring revenue growth.
  
• Significant new private markets initiatives-including the infrastructure equity fund and upcoming Sharia-compliant Deep Tier Supply Chain finance fund-position Record to tap into the accelerating growth of institutional assets in emerging and developing markets, providing locked-in, long-term fee streams that could drive sustained earnings expansion.
  
• The firm's reset technology strategy, cost rationalization, and focus on systematic, data-driven solutions point to improving operational leverage and efficiency, which is likely to support margin expansion and enhance net profit over time.
  
• Recent strong inflows from asset manager hedging products and cross-selling across product lines suggest Record is successfully deepening relationships with large institutional clients, which should diversify and stabilize its revenue base, reducing earnings volatility and client concentration risk.
  
• Launch of tailored, complex solutions for global clients (e.g., infrastructure equity for Swiss pensions, large-scale potash plant financing) leverages Record's ability to provide differentiated offerings, enabling the company to benefit from long-term industry trends toward more sophisticated risk management demands and potentially boosting overall fee rates and profitability.

Record Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Record's revenue will grow by 6.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 23.4% today to 20.6% in 3 years time.
• Analysts expect earnings to reach £10.3 million (and earnings per share of £0.05) by about July 2028, up from £9.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.2x on those 2028 earnings, up from 11.5x today. This future PE is greater than the current PE for the GB Capital Markets industry at 13.3x.
• Analysts expect the number of shares outstanding to grow by 0.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.21%, as per the Simply Wall St company report.

Record Future Earnings Per Share Growth

Risks

• Record experienced significant revenue decline this year (down 8%) and a reduction in management fees (down 4%), primarily driven by the loss and restructuring of large client mandates in absolute return and custom products, highlighting ongoing client concentration risk; this creates volatility in both revenue and earnings.
  
• The company continues to face margin compression, with the operating profit margin falling from 27.8% to 25.6%-partly due to a shift away from higher-margin, performance-fee-driven products and greater competition in core risk management offerings; this threatens long-term profitability and net margins.
  
• Record's core business remains highly reliant on traditional institutional risk management products, and while newer initiatives in private markets are promising, they have yet to fully compensate for lost revenues in established segments, indicating long-term growth and revenue may remain subdued if innovation lags or new products are slow to scale.
  
• The rapid expansion of low-cost, technology-driven FX solutions and commoditization in currency management could further erode fees, given that Record recently had to write off a major IT project and is only now rebuilding its tech capabilities, risking both revenue retention and future operating margins.
  
• The company's significant investments and expenses associated with launching private market products, as well as one-off costs for new office space and IT write-offs, have already led to lower profits and higher upfront costs; if expected large-scale deals or fund deployments are delayed or fail to materialize, this could pressure both near-term revenue and longer-term earnings growth.

Valuation

• The analysts have a consensus price target of £1.4 for Record based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £49.9 million, earnings will come to £10.3 million, and it would be trading on a PE ratio of 34.2x, assuming you use a discount rate of 8.2%.
• Given the current share price of £0.58, the analyst price target of £1.4 is 58.6% 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.