The present markets should favour financial companies such as Intermediate Capital Group. This is shifting from investing its own funds to a more asset management operation, launching funds with high rates of return targeted at institutional investors.
This is attractive in the continuing low interest rate environment and provides more reliable fee income. ICG enjoyed a 3 per rise in total assets under management in the fourth quarter to €22.6 billion, with €600 million of fresh third-party money raised. This mainly reflected a close on one fund, Asia Pacific III, and a further cash-raising for another, Strategic Secondaries Fund.
The total figure was ahead of some market forecasts. Fee-earning assets under management were up 5 per cent, though, to €17.3 billion. The company says that fundraising and capital deployment remain on track, with good visibility into next year.
ICG’s own investment portfolio in its own funds fell in value by 4 per cent because of exits from investments outstripping the pace of new ones, a factor beyond the company’s control. That portfolio now represents 8 per cent of the balance sheet, down from almost 20 per cent in March 2014 and reflecting that shift to third-party management.
The third-quarter numbers indicate that ICG is well on track for the full year, but the main promise of growth, the market suspects, will come thereafter. A recent positive note from Société Générale expects gross inflows of assets under management of €3.2 billion in the current year, but says these should reach €6.4 billion in the next financial year and €5.6 billion in the one after, with the prospect of these forecasts being significantly outpaced. In that next financial year, profits from fund management should exceed those from investments for the first time.
The relevance for investors has to do with future dividend policy. ICG has said that payments are set to be significantly rebased as earnings become more reliable. The shares, up 6p at 692½p, have been a useful income stock in the past and tipped here for that reason. They sell on a relatively inexpensive ten times earnings and on one forecast for dividends will yield 4.8 per cent for that next financial year. Worth buying for that future growth.
My advice Buy
Why The transition to an asset management model will mean much more reliable earnings, to be redeployed as higher dividends
Joules Group
The first half-year figures from Joules Group, which sells country-themed casual gear, were largely in line with expectations, as they should have been, covering the months to the end of November that immediately followed the stock market flotation.
Joules is best thought of as a SuperGroup writ small; it sells its brand through its own outlets, through other retailers and increasingly online. Revenues were ahead by 16 per cent and pre-tax profits by 20 per cent to £7.5 million. It has just decided to take its US distribution network in-house, which will cost in the near term but enhance margins. There are a little more than 100 stores in the UK and Ireland. Growth will come from new openings, from online as customers are added and from the United States.
Trading over Christmas was strong, sales up almost 23 per cent. There is a nominal halfway dividend of 0.6p but the yield is insignificant. The shares have done well since the float. Debuting at 160p, they fell 4p to 216½p on the halfway figures. They sell on 26 times earnings, reflecting those growth prospects. Not an immediate purchase.
My advice Avoid
Why Prospects for growth look priced in, near term
SSE
At above 6 per cent, the dividend yield available on SSE shares to the Scottish energy company’s near-300,000 private investors is among the best on the market from the privatised utilities. Some have wondered, though, how reliable that yield is.
The company used its third-quarter trading statement to reiterate that dividend policy, aiming, along with many other privatised utilities, to grow the payment by at least the rate of inflation. Indeed, it would be astonishing if it had not. SSE seems sufficiently confident of its cash position to use £500 million of the proceeds of the disposal of part of its gas network before Christmas to fund a share buyback programme.
The trading update warns that still, dry weather did affect production from renewable generation, but this is little to worry about. SSE is going through a heavy investment programme over the next few years, including a big onshore wind farm, and will have to spend £6 billion between last year and 2020.
It expects dividend cover over the next three years to come out at between 1.2 times and 1.4 times earnings and the current year’s payment falls in the middle of that range, on the forecast 120p of earnings per share.
That is not an especially slim cover for a business with such reliable profits, while the company seems confident enough it can fund that capex and keep up payments. We are not looking at another Pearson here, then. The shares, off 3p at £14.89, have fallen this year with other income stocks. Still worth holding.
My advice Hold
Why Dividend yield seems safe enough for now
And finally . . .
It was always expected that Thomas Sampson, who stood down as chief executive of Peacock Foods when the American company was bought by Greencore, the fresh foods supplier, at the end of the year, would continue as an adviser. Greencore has announced he will be joining the main board as of today. It was always sensible to lock in some expertise in the US foods market and Mr Sampson worked for Kraft before Peacock. The $747.5 million purchase is a big leap for Greencore into a new and potentially challenging market.
