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Quilter - spin-off opportunity?

By Chris Bailey | Wednesday 8 August 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

I loved up Old Mutual (OMU) as an African-influenced play a couple of UK Investor Shows ago, but what ultimately pushed the shares up was that it split the business into its constituent parts including the wealth management business Quilter (QLT) – which announced its inaugural independent results today.

I do like spin-offs. The basic rationale is that a hamstrung divisional management is newly liberated by being away from the all-seeing corporate yoke - and I have made money from them in the past. The structure of the Quilter spin-off at least has liberated the company from any corporate yoke as Old Mutual sold 9.5% of the business and distributed the rest of its shares to its own shareholders with one Quilter share being distributed for every three in Old Mutual. No doubt there was a bunch of Old Mutual shareholders who did not want exposure to a UK wealth management firm but, given the time lapse since the June spin-off, much of this will have worked through. Either way, the shares trade at a small current premium to their 145p effective float level.

Today's numbers have their good and bad points. A 16% rise in first half profits year-on-year and a 12p special interim dividend reflecting the benefits from a divisional sale is solid enough progress, but when the CEO notes that net flows of £2.2 billion (to bring assets under management and administration to £116.5 billion) is 'someway from demonstrating...full potential' you have to admire his style. Smell that spark of entrepreneurial spirit?

Of course all wealth businesses today suffer from the challenge of pressure on fees from those horrid passive funds, ageing client bases and slightly archaic internal structures. Actually on the latter, I do note that the company is taking the opportunity to continue testing and preparing for next year's new platform roll-out. Of course these things can be a disaster - just ask TSB! - but in this space doing something is better than being held together by string systems.

An alright balance sheet, a low teens multiple, products having performed solidly enough versus peers and a spark of entrepreneurial whatevers...that is not a bad combination. Certainly whilst the offering may not be particularly differentiated, the staff - loaded with shares - should be suitably motivated.

Yes, wealth managers are interlinked with the broader markets and this can impact their share prices, so if you are very bearish then this is not one to consider but, for me, I quite like it in a space which will continue to consolidate. Snaffling a few Quilter shares makes a bit of sense to me.

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