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Tavistock Investments: THE INVESTMENT CASE

Tavistock Investments very upbeat as money flows into managed funds

Tavistock’s optimism is based on the surge of money into its seven discretionary funds that trade under the Acumen brand.
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INVESTMENT OVERVIEW: TAVI The Big Picture
Acumen is seeing money pour in

Fund managers are traditionally a cautious bunch, so when Tavistock Investments PLC (LON:TAVI) says its profits can rise from almost nothing to £5mln, it’s worth taking notice.

“Eminently achievable,” was chief executive Brian Raven’s response when asked by Proactive Investors about the punchy number that appeared in the interim statement.

Tavistock’s optimism is based on the surge of money into its seven discretionary funds that trade under the Acumen brand.

Acumen funds proving a winner

In the half year to September, funds under management rose by 130% to £745mln.

That led revenues in the discretionary business, which fully manages investors’ money, to rise to £1.52mln in the first half compared to £1.66mln for the whole of the previous year.

Most of the growth in funds under management (FUM) had been organic, he said, and this revenue hike was boosting Tavistock’s earnings by a disproportionate amount.

The group's investment management business has a relatively fixed overhead base and, as a consequence, the revenue resulting from increased levels of FUM has a direct impact on group profitability.

Tavistock is not a stock-picking manager. Acumen’s funds are essentailly in index-tracking investments or ‘smart beta’ products and do not require a large team of analysts pouring over balance sheets.

Acumen has six risk-rated models (low to high depending on preference) and as asset flow increases that business becomes more profitable asc ost remains largely the same.

That was evident in the half year numbers. Group revenues jumped by 40% to £12.4mln with underlying profits [EBITDA] of £297,000 compared to a loss of £42,000.

On a statutory basis, Tavistock just about broke even after a comparable loss of £795,000.

Most of the revenues came from the advisory business, but assets/funds under management (FUM) are the real profit generators.

Funds under management the profit generator

So far, there has also been very little outflow so almost of the revenue repeats.

“For example, if the FUM managed by Tavistock Wealth were to increase to £1.5bn and the continuing Group's underlying cost base were to remain unchanged, the EBITDA produced on an annualised basis would be over £5mln.”

In the advisory business as well, repeat revenues are running above 80% year-on-year.

It now has over 300 advisers helping 70,000 private clients looking after £4bn of investments, of which around fifth is managed by its investment business, Tavistock Wealth.  Its selling point is this integrated approach.

Market movements less important

Raven adds that the way Acumen is set up to manage risk for its clients makes market movements less important than for other funds.

“ I have considerable trust in way we run money,” he said, though when pushed said he was happy with equity markets but concerned about bonds especially in the UK.

Past success

Raven (and executive chairman Oliver Cooke) are best known for Card Clear, a pioneer of fraud protection for credit cards and one of the first stocks to list on the alternative market back in the 1990s.

This grew from a start up to a value of around £100m and Raven is hoping to repeat the alchemy with Tavistock.

“The tactical approach we have taken in the past of creating an investment vehicle and building value hasn’t changed,” said Raven.

At 3.38p, Tavistock is valued at £18.1mln.



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