Shares in currency manager Record (REC) jumped 15.6% to 48p on Friday as the company revealed surprise plans to pay a special dividend. The proposed 0.91p per share payout will be over and above the 2p per share ordinary dividend for year to 31 March 2017, which itself shows a 20% hike on 2016’s pay out.
The Windsor-based company manages currency fluctuation risk for large clients, including pension funds. It also offers a Multi-Strategy product which trades currencies for profitable client returns.
Record’s results were up across the board. Assets under management equivalent rose 26% in sterling terms, hitting £46.6bn. The figure is an equivalent as, unlike most asset managers, it doesn’t hold any physical securities on behalf of clients, stocks and bonds for example.
Adjusted pre-tax profits beat the prediction of Rae Maile, analyst at Cenkos. The analyst was anticipating £7.7m versus the £7.9m announced.
WORRIES PUT TO BED
In April Shares reported that investors may have been spooked by the company losing some key clients. The share price tumbled in the final quarter. But today's market reaction suggests that Record outperformed expectations by a decent margin.
'The business thrives on turbulence, uncertainty and political change which all impact the currency market,' CEO James Wood-Collins told Shares.
Income seeking investors will also be buoyed by £29.2m of cash reserves, which may imply attractive payout growth in future. Cenkos calculates £23.1m cash is currently surplus to Record's regulatory requirements.
Record may also pay additional special dividends in future, depending on performance and excess cash. Wood-Collins says up to £10m could find its way into shareholder pockets in future.
In the meantime, Record is in expansion mode, looking to hire more people, particularly in sales. That may not be easy, Wood-Collins accepts the specialist skills required make finding the right people always a challenge.
Cenkos forecast earnings per share of 3.2p for the year to 31 March 2018, which implies a forward price to earnings (PE) ratio of 15.
Cenkos anticipates a 5% growth in the ordinary payout this year to 2.1p per share, implying a 4.4% income yield. However, the broker is also very confident of another special dividend this year, perhaps around 1p per share, for arguments sake, which could push shareholder income returns to close on 6.5%.
Like any asset manager Record is subject to the vagaries of the markets in which it invests and investor sentiment. But this niche operator is gradually building a decent track record of success, one that may justify a higher share price down the line.