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Edison Investment Research Limited
London, UK, 01 August 2023
ABC arbitrage (ABCA): Initiation – A specialist arbitrage trader and asset manager ABC arbitrage group has been successfully developing and executing non-directional trading strategies since 1995, which has allowed the group to deliver a strong ROE of 22% over the last 15 years (with an ROE above 10% in each of these years). Historically, ABCA has paid almost all its profits as dividends. As the group has opened some of its strategies to external investors, it also offers the prospects of growing fee income from third-party capital (6.5% of total revenue in 2022).
In our base scenario, assuming growth in third-party AUM to c €434m and €617m by FY25e and FY27e, respectively, and ABCA’s long-term return on equity of c 16% pa, we arrive at a fair value per ABCA share of €6.84 (c 15% above the current share price). Our bear case scenario assumes no additional inflow of third-party capital and suggests a fair value per share of €5.76 (3% downside), whereas in our bull case scenario we assume ABCA reaches its target third-party AUM of €800m by 2025, which renders a fair value of €8.32 per share (40% upside).
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1691973 01-Aug-2023
