Record PLC (LON:RECL), as an experienced, independent, well-capitalised provider, is in a good position to benefit should market volatility prompt a rise in demand for currency hedging and management services. Hedging now accounts for 85% of Record’s fees, moderating the risks of volatility in its own income, while shareholders stand to benefit from a prospective total yield that could exceed 8% (6.5% from the indicated ordinary dividend).
Recent trading
Record’s Q1 update to end June, showed AUME in dollar terms down 1.3% to $53bn with a marginal net outflow and a negative exchange rate move of 2.8% relating to non-dollar mandates, partly offset by positive market movements. Exchange rate movements meant this translated into a 6.1% AUME increase in sterling terms. The multi-year positive trend in client numbers continued with an increase from 58 to 61. On a longer view, the AUME mix has shifted away from the higher-fee-margin currency for return strategy, but the stickier passive hedging strategy accounts for c 45% of fee income, which is equivalent to 85% of costs before group profit share. Our EPS estimate for 2017 is increased by 3%; it does not allow for any performance fees or additional net flows. (See page 4 for a discussion of FY16 results.)
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