AFH boss 'frustrated' at valuation drop

AFH boss 'frustrated' at valuation drop

The chief executive of AFH Financial Group has said he is frustrated the valuation of the company has dropped despite growing revenues and shareholder returns. 

In a 12-month trading update published today (November 11) the wealth manager reported its revenues were set to jump to more than £74m for this year, up from £50.6m in 2018. 

AFH's string of acquisitions this year contributed £6.5m to the increase while £29m was generated by new business written by advisers. 

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Despite this chief executive Alan Hudson said the company's valuation according to certain metrics had fallen. 

According to broker Liberum AFH is currently "significantly undervalued" and trading at a historically low rating of 8.2x the price to earnings ratio, despite showing strong organic growth. 

Liberum said this was partly due to investor concerns around cash conversion, which it said had now improved, and predicted a re-rating to 14.5x was "likely". 

Mr Hudson said: "Given the strong performance over the year it has been frustrating that the valuation multiple of the group has fallen significantly below that of the sector average in spite of our continued growth and increased shareholder return.

"We continue to focus on delivering shareholder value through the profitable growth of the business."

Funds under management at the wealth manager hit £6bn this year, up from £4.4bn in October 2018, of which its acquisition spree contributed £1bn in assets. 

In September AFH announced it would be pausing its acquisition drive and would not seek any additional funding from the equity market for deals in the "foreseeable future", instead focusing on "organic growth revenue" in light of the current economic and political climate. 

The wealth manager said it would still seek to complete deals currently undergoing due diligence in its pipeline, completing its purchase of Warwickshire-based IFA Groom Associates for £600,000 earlier this month.  

AFH completed eight acquisitions this year at a capped spend of £30m, with the company reporting a cash balance o £11.9m at the end of October. 

Earlier this year the company's board set three to five year targets of £10bn in funds under management, £140m in annual revenues and an underlying earnings before interest, taxes, depreciation, and amortization margin of 25 per cent. 

Mr Hudson said: "The recent refinement of our model to place a greater focus on cash generation in these uncertain political and economic times will put AFH in a strong position as we enter the new year, focusing on organic growth and paying down our deferred earn-outs.

"This will free up significant cash flow in the medium term and enable us to continue to deliver on our goals without requiring further funding from the equity markets." 

The chief executive added: "Demand for advisory services in the UK continues to grow - the population is living and working for longer and there exists a significant savings and advice gap.

"The directors believe that AFH is well placed to benefit from this trend. Our client focussed approach and our growing AFH community creates a commercial advantage for our clients when compared to both small IFAs and traditional wealth managers."