Stock markets registered their approval as shares in Quilter, the wealth management business spun out of Old Mutual, enjoyed their market debut.
They jumped 8 per cent at the opening yesterday, well above Quilter’s initial public offering price of 145p a share, valuing the company at close to £2.8 billion, although they later dropped back slightly amid a broader FTSE sell-off.
The IPO comes after Old Mutual, the Anglo-South African financial services group, announced plans in 2016 for a “managed separation”, to simplify the business and deliver better value for shareholders.
The group argues that regulatory changes had left it too expensive and complex to run in its previous form — an unwieldy financial conglomerate that many investors found puzzling. The break-up is now well advanced, after the sale of its stake in its US asset management unit. Its remaining division, Old Mutual Limited, which owns South Africa’s Nedbank, will be listed in London and Johannesburg.
So should investors pile into this opportunity to buy shares in Quilter as a standalone wealth manager? There are good reasons to think so.
Done right, wealth management can be a great business. Clients are notoriously sticky and, if treated well, can be retained for decades, generating annual fees.
In the UK, it is a growth industry because of increased pension freedoms and the need for people to take responsibility for funding their retirement and for their savings.
Of course, there are no guarantees that Quilter will succeed. But the company, whose brand dates back to the late 18th century, has experience and a management track record.
Paul Feeney, chief executive, head of Old Mutual Wealth since 2012, looks a safe pair of hands. He says independence will “give the group oxygen” to succeed on its own terms.
Moreover, with over £100 billion of assets under management and 900,000 customers, Quilter also has the muscle to succeed in a business that is increasingly about scale.
The old days of boutique firms are more or less over as the rising cost of regulatory compliance has made it tough for small players to compete.
Being a standalone company could bring other benefits, including the ability to make bolt-on acquisitions without having to fight for resources with other Old Mutual businesses.
It also means the company may appeal to growth investors.
Nevertheless, for all its strengths, there are questions over the new company’s strategy and prospects.
Quilter is heavily reliant on the British market. The UK may be the fifth largest wealth management market globally but, with all of the uncertainties over Brexit, this poses risk set against more geographically diversified competitors.
Some critics point to uncertainties over the completion of a new IT platform at Quilter as well as a continuing Financial Conduct Authority investigation into the wealth management industry as potential areas of concern.
It is worth pointing out that the IPO price reflects these risks, with Quilter trading at 13 times forecast earnings and a 3.5 per cent yield. That is a discount compared with peers such as Brewin Dolphin on 13.9 times and 5.1 per cent, respectively.
Only about 9.6 per cent of Quilter’s shares will be floated on the stock market, raising £231 million. The lion’s share are to be split up between Old Mutual’s existing shareholders, with the rest held by management and staff.
But for investors seeking to take a punt on a serious new player in UK wealth management, Quilter is worth a look.
ADVICE Buy
WHY A serious new player in a growth business with new-found flexibility to do deals and conduct business on its own terms
Mind Gym
For those looking for somewhere to put their money in London’s junior market there will soon be a new kid in town: Mind Gym.
The company announced plans yesterday to list on Aim at 146p a share. The £145 million flotation has already attracted oversubscribed investment from Blackrock Advisors, Hargreave Hale and JP Morgan Asset Management. Mind Gym has also secured a big hire: Dido Harding, former chief executive of Talktalk and chairwoman of the Bank of England’s remuneration committee, will become senior independent director.
Mind Gym was founded in 2000 by Octavius Black, a friend of David Cameron, and Sebastian Bailey, a behavioural scientist. The company creates 90-minute training courses for middle managers, including how to raise productivity or improve ethical behaviour. Training can be provided in person by coaches — it has 335 — or through “webinars”.
Mind Gym already has about 300 training programmes and at a time when companies are cutting internal HR and training teams, the company thinks there is scope for growth. A quick look at its numbers shows that Mind Gym is on a fairly strong growth trajectory. Its revenue has jumped from £25 million to about £37 million since 2016 and its adjusted earnings have trebled from £2.6 million to £7.8 million. Pre-tax profits have jumped from £1.8 million to just over £6 million in three years.
The pick-up in performance is a result of new course development as well as strong client retention: between 80 per cent and 90 per cent of their sales each year come from existing customers which include Unilever, Maersk, and Microsoft.
All very promising, but there are a few things that might have to be ironed out over time. Joanne Black, the wife of Mr Black, will chair the company, which is unusual from a corporate governance point of view.
This is clearly a growth area in corporate learning and shares in Mind Gym’s bigger listed rival, Learning Technologies, have soared from 45½p a share to 109½p in the past year. If Mind Gym enjoys a fraction of that demand it could be in for a bullish start to life as a listed company.
ADVICE Buy
WHY A growth area in business and demand means shares are likely to pop
