Strategic progress in choppy waters
​WH Ireland (WHI) is a financial services company offering Private Wealth Management, Wealth Planning and Corporate Broking services.
Results today show that , helped by winning a number of significant mandates, AUM grew 6% in the half-year, despite a 2% fall in the FTSE All-Share index, with a particularly strong 24% rise to £949m in the more valuable discretionary FUM. This actually exceeded the rise in total AUM as the move to a fee-based system has led, in those clients' interests, to the closure of some inactive accounts.
In the light of market conditions we cannot be surprised at the decline of one-quarter in WH Ireland's total revenue in H1 2015/6. This has been one of the worst periods for AIM brokers with falls in companies listed, trading activity and money raised. Pre-referendum uncertainty, on top of worries about China, hit trading activity and money-raising (the main source of income for AIM brokers and NomAds); the latter slumped by more than 30% compared to H1 of WHI's 2014/5 year.
However, WHI's balanced group of activities in wealth management, corporate broking and market-making enables it to survive a slowdown in any one division. It is one of the leaders in AIM corporate broking with 95 clients and yet again increased its market share of over 9%; its reliable retainer income covers all of its corporate broking division's employment costs. So, if conditions improve, then profitability will rebound.
Using any version of the rule-of-thumb valuation gives a value far in excess of WHI's market capitalisation for its wealth management division alone; on 4% for Discretionary FM, 2% for Advisory and 0.5% for Execution-only, one gets £57.1m or 221p/share - applying the 6% that was paid for Towry's AUM would give over £6/share!
Our sum-of-the-parts valuation including the Wealth Management division, equity in the Head Office and cash surplus to regulatory requirements (but ascribing no value to Corporate Broking) is £62m or 240p/share, nearly treble the current price.
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