There are many small-cap stocks that fly under the radar of most investors, but Premier Asset Management Group (LSE: PAM) shouldn’t be one of them. The £230m market capitalisation company has enormous potential as it takes market share from its traditional rivals.
Full-year results from the group today showed that £747m in new money had been invested with the fund manager during the past year, to take total assets under management to £6.1bn, up from £5.0bn a year ago. It marked the 18th consecutive quarter of inflows for the business, demonstrating that demand for top-performing actively managed diversified funds remains strong as people seek long-term investment outcomes.
Underlying pre-tax profits for the period climbed by 39% to 14.7m as the firm revealed a 23% increase in net management fees to £45.9m and a slight improvement in its net fee margin from 73.5 basis points to 73.9bps.
Market pressures
Premier’s recent results have been helped by its strong investment performance and its greater focus on multi-asset, fixed income and absolute return funds — but not everything is going in its favour. There are a number of headwinds ahead, which include the risk of a prolonged period of economic uncertainty for the UK economy and a challenging investment and business environment.
Margins in the fund management industry are also in long-term decline due to the rapid rise in popularity of low-cost passive funds and Premier is not immune to structural changes taking place in the market. Sure, it has so far weathered the storm well, but it’s been helped by recent pension changes that allow people to access the money in their pension funds earlier. In the long term, it will face a tough job to prove its worth against lower cost rivals.
Still, looking at the consensus analyst forecasts, Premier Asset Management appears to offer tempting value. With City analysts forecasting underlying earnings of 15.3p for 2018, the stock is worth just 13.6 times its expected earnings, against the sector peer average of 15.8.
A prospective dividend yield of 5.3% also sweetens the investment case, with analysts expecting a 36% increase in its payout in the coming year.
Another in the sector
Premier is not alone is seeing robust fund inflows. Jupiter Fund Management (LSE: JUP), its larger rival, is another in the sector worth keeping an eye on.
It has recently been expanding into the fixed income and multi-asset market in the pursuit of faster growth and business diversification. And it’s a strategy that is so far paying off, with the fund manager seeing inflows climb to record levels in the third quarter of 2017. Net inflows between July and September topped market expectations, at £1.2bn.
Looking ahead, I’m confident that Jupiter will continue to deliver further growth, helped by its scalable operating model and growing demand for its fixed income and multi-asset strategies. City forecasts point to earnings growth of 16% in the year to April 2018 with a further expansion of 7% in the following year.
With profits growing robustly, analysts are expecting similar increases for dividends too. A 30p per share reward is currently predicted for 2017, which translates into a bumper prospective yield of 5.1%.