The bold buy-and-build policy of wealth manager AFH Financial Group's (AFHP:AIM) is paying off. Results for the first six months to 30 April show revenues up 19%, profit before tax jumping 36% and underlying earnings per share 27% higher to 6.17p. The firm also broke through the £2bn barrier for funds under management, with £2.2bn (up 17%) of investor cash in its charge.

This is clearly better than investors had been expecting, judging by the 8%-plus rally in the share price on Monday, to 232.5p.

AFH Financial Group

Done deal

The company struck deals to buy Parker Sage Independent Financial Advisers and Eunisure for a combined £10m last week alone. More acquisitions are in the pipeline according to the company’s chief executive Alan Hudson largely due to a successful £10m placing in April.

The firm’s cash position is up to £12.6m from £7.1m last year largely due to the placing and the company says that regulatory dynamics continue to support further industry consolidation.

'The fundraising has provided the company with the ability to complete a number of strategic and tactical acquisitions during the remainder of the year and into 2018,' said Hudson.

Market response

Broker Liberum is pleased with the results, increasing the company's earnings per share by 1% this year, going up 21% for 2018. The broker has also increased its target price to 296p, suggesting the company’s shares have scope to rise by 27%.

Broker Liberum is forecasting earnings per share (EPS) of 13.8p for the full year to 31 October 2017, which would be impressive given last year's 7.16p. That implies a forward price to earnings (PE) ratio of 16.8-times. This is below the wealth management sector average of 22-times, according to Liberum data, and arguably unjustifiably so given the company's apparently strong business model and earnings growth trajectory.

Risk factors ahead include ongoing regulatory changes that could raise operating costs in future. There is also anecdotal evidence that industry pricing is becoming softer due to pressure on fees.

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Issue Date: 05 Jun 2017