AssetCo Plc - downside protected, significant upside, exposure to exciting asset management acquisition journey
Press reported possible Parmenion transaction may help value to be recognised
Listed on London Stock Exchange, AIM - ticker ASTO.
Share Price £0.695 / 69.5p
Market Cap. at c. 149m shares £104m
Introduction
AssetCo kicked into a new direction in early 2021 when big hitters of the asset management industry took over, investor enthusiasm made the shares 5x from 47.5p to 250p, while the strategy appears to be progressing well, the shares have fallen back to 69.5p. The assets already acquired provide strong downside protection at the current share price, giving investors exposure to significant upside from the existing assets, and participation in an exciting longer term story.
AssetCo Corporate Background
Historically AssetCo Plc was involved in outsourced firefighting / emergency services, there were issues with fraud, they pursued Grant Thornton for performing a negligent audit and obtained c. £27m excess cash from this in late 2020, returning this to shareholders through a tender offer for 50% of the shares in issue at the time.
In January 2021 Martin Gilbert, co-founder of Aberdeen Asset Management and post merger co-CEO of Standard Life Aberdeen, with others acquired 29.8% of the company at 47.5p, and set it on a new path in asset & wealth management. This has involved the acquisition of a number of businesses in full or part, and the merger with listed River & Mercantile Plc, explored below.
Note there was a 10 for 1 stock split in August 2022, all share prices and share quantities in this note have been adjusted to reflect.
Acquisition of Active Fund Managers & Merger with River and Mercantile Group Plc
AssetCo has acquired the following small active fund managers:
May 2021 - Saracen Fund Managers Limited for £2.75m c. 2% of AUM £119m. Paid with £0.7m cash, and 1.7m shares valued at c. £2.1m based on 125p price. Note this deal is later referenced as costing £2m, but the cash & shares issued are the same.
February 2022 - Revera Asset Management Limited for £1.1m cash, c. 2% of AUM £50m at completion. Note the consideration was revised down from £2.8m due to a decline in AUM prior to closing.
June 2022 - SVM Asset Management Holdings Limited for £10.7m split £1.7m cash, and £9m in loan notes, c. 2% of AUM £586m. Note AssetCo can force conversion of the loan notes in to shares at 145p, substantially above the current share price.
In June 2022 AssetCo acquired River and Mercantile Group Plc in an all-share merger, issuing c. 60m shares. The offer was made in January 2022, and is stated as costing £95.3m, implying a share price of c. 160p, note this is substantially above the current share price. The stated cost of £95.3m is c. 3.5% of AUM, however when it completed in June 2022 the share price was 73.5p, which would value the new shares at £43.9m or c. 1.6% of AUM. This was a major acquisition for the company, bringing equity AUM of £2.7bn, and an infrastructure investment team to be used as a foundation for building a private markets business.
There is straightforward logic that a group of active fund managers should be able to share certain costs, operate more efficiently, and achieve better distribution.
30% stake in Parmenion Capital Partners LLP
In July 2021 AssetCo announced the acquisition of a 30% stake in Parmenion Capital Partners LLP for up to £27.8m, £20.6m up-front, with up to £3.6m in both March 2022 & March 2023. Parmenion was owned by Standard Life Aberdeen before being sold to Preservation Capital Partners in June 2021 for up to £102m.
Parmenion provide a B2B fund investment and advisory platform, are highly rated (see awards), and have achieved strong growth over time. There is a helpful analyst report from Zeus regarding Parmenion available on Research Tree, and although not publicly listed the 2021 annual report is available on companies house. We can see that net revenue (after pay away to discretionary fund managers) grew by 20% in 2021 to £30m on AUM of c. £9bn. It was reported recently that Parmenion have acquired EBI Portfolios, a discretionary fund manager with £1.9bn AUM.
Mark Kleinman at Sky has reported (8th Sept.) that there are efforts to sell a stake in Parmenion at a valuation of £300 - £400m. This would be a huge uplift to the c. £93m valuation AssetCo bought in at a little over a year ago.
This is a key asset, with each £100m change in valuation being worth £30m or 20p per share to AssetCo.
Rize ETF Limited
In July 2021 AssetCo acquired 63% of Rize ETF for £16.5m, and committed to invest a further £5.25m to help grow the business, for a total investment of £21.75m. AUM was over $450m.
Rize provide thematic ETFs, focussed on “megatrends”, they currently have 8 funds, with the two largest being the Sustainable Future of Food, and Cybersecurity and Digital Privacy. AUM has fallen a bit since acquisition and now sits at c. $420m.
Thematic ETFs focused on major trends has been a hot area for investing. This is reflected in the price paid being c. 8% of AUM, based upon the £16.5m investment in B ordinary shares for 63% implying a valuation of £26m, not including the further £5.25m in preference shares.
Valuing this business is not that straightforward, there is potential if one or more of the Rize ETFs were to become particularly popular.
Financial Position
The financial position of AssetCo is not immediately obvious, due to the completion of the acquisition of River and Mercantile occurring post the last reported AssetCo balance sheet of 31 March 2022, further River and Mercantile reported their balance sheet at 31 Dec. 2021 with the substantial UK Solutions business as held for sale (now sold and large distribution to shareholders pre-merger), and the US Solutions business shown as a continuing operation (now sold, completion post merger).
However, AssetCo stated in June 2022 that “The Company is also in sound financial shape and following completion of the acquisition of, and return of capital from, River and Mercantile, the Group will have net cash of more than £45 million.” We can estimate a substantial positive net cash / financial asset position:
Cash post merger completing in June 2022 of more than £45m
Less: Parmenion March 2023 consideration up to £3.6m (assume any March 2022 amount due has been paid before £45m stated above)
Less: SVM Asset Management acquisition £10.7m
Less: Revera Asset Management completion £1.1m
Add: Sale of River and Mercantile US Solutions business £7.6m (not all received immediately)
Less: Related Party Loan at March 2022 £1m (don’t know if repaid prior to £45m figure)
Net cash / financial asset position total: c. £36m
Note this is an approximation of key items only, there will be further (hopefully not too significant) financial assets / liabilities to consider.
Upside, Downside
Bringing it together, as detailed in the table below gives upside to £1.45 / share +108%, and downside underpinning the current share price. This is not precise, but should demonstrate that at the current share price it is hard to see much downside to the current set of assets held, and there exists substantial upside.
Note dilution is not considered for this approximate example.
Further to this, much greater upside could arise if the management are able to string together successful deals in the future, realising the potential inherent in this strategy. The board contains some big hitters, especially to be involved with a c. £100m market cap company, with the Chairman, Deputy Chairman, and CEO all having left senior positions at Standard Life Aberdeen (market cap c. £3bn, now named abrdn plc) within the last couple of years.
Catalysts
There are a few areas that could help value to be represented in the share price:
Possible transaction involving Parmenion, either resulting in full / partial realisation, or setting an up to date valuation mark against this key asset.
Clarification of group financials, leading to better market understanding of the business and earnings potential, as reporting covers the combined group.
Continued acquisition activity, leading to greater scale.
Disclosure
Long AssetCo Plc at time of posting.
This post is not investment advice & may contain errors.