In an investment note from Peel Hunt, analysts branded the wealth management group a ‘buy’ and said its shares, currently trading at 27p, could be worth at least 40p — a jump of 47 per cent - in the coming years.
Analysts said the investment case for the firm had several key elements, including that Kingswood was trying to consolidate in a fragmented advice sector.
This, combined with the company’s support from private equity firm Pollen Street, Kingswood’s presence in the US and its “experienced management team”, made it an attractive investment proposition.
Peel Hunt said: “Although general economic uncertainty, to some extent, creates a short-term headwind, we continue to believe the UK wealth management sector offers long-term growth characteristics.
“This is supported by demographic trends, the requirement to provide for retirement, the complexity of legislation and regulation and consolidation of a fragmented sector.
“In addition, we see an ongoing convergence of investment management and financial planning, with holistic financial planning and advice becoming central to the overall client proposition.”
Kingswood has grown rapidly over the past two years, acquiring five financial advice businesses and boasting assets of more than £5bn.
It aims to take advantage of consolidation opportunities in the UK and US wealth management sectors, and first moved into the US when it bought a 7 per cent stake in US business Manhattan Harbor in May 2019.
Just last month, it pushed ahead with its US expansion plans and secured a majority stake in the firm, which has now been renamed Kingswood US.
According to Peel Hunt, it was promising that Kingswood’s acquisitive growth strategies were backed up by its £80m deal with private equity firm Pollen Street.
In September last year, the consolidator secured £80m from the firm to fund its pipeline of acquisitions.
The analysts said: “Kingswood draws down on this facility as required to complete acquisitions, enabling management to be in a strong position when negotiating potential transactions.”
There were some risks involved with investing in Kingswood, however, the analysts added.
These included the unknown future performance of the acquired entities, evolving financial expectations and the fact the fund’s share capital is primarily in the hands of the private equity firm, once the full £80m of funding is used.
Peel Hunt said: “Kingswood is undoubtedly at a relatively early stage in its evolution, with reported financials still to reflect the progress made.
“However, the business has an experienced management team, the capital with which to pursue acquisitions, scalable infrastructure and a nascent investment management capability.”