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AFH sets £10bn target as acquisitions power profits

IFA consolidator AFH has reached £5 billion of funds under management and now wants to double that by 2024

AFH sets £10bn target as acquisitions power profits

IFA consolidator AFH has reached £5 billion of funds under management (FuM) and now wants to double that by 2024.

The Bromsgrove-based business has today published its full-year results to 31 October 2018, which show an increase in pre-tax profits, with Ebitda up 85% to £10.4 million from £5.7 million in 2017. Meanwhile, revenues are up 51% from £34 million to £51 million.

Funds under management have risen from £2.8 billion to £4.4 billion, up 58%.

2018 was a bumper year for acquisitions for AFH. During the year it completed at total of 16 acquisitions with a combined value of £34 million. Two of these deals carried a target value in excess of £5 million.

AFH said almost £1.5 billion had been added to FuM as a result of the combined transactions.

Those who sell to AFH are paid in stages; an upfront payment and a deferred portion, which is only paid out if certain business performance targets are met.

AFH reported the average deferred payout for acquisitions, which reached a performance milestone during the year, exceeded 90% of the targets set at the time of the transactions.

Acquisitions combine retiring IFAs, ‘whose client portfolios have been transitioned to existing AFH advisers’, as well as entire businesses ‘whose clients and advisers have been absorbed into the AFH model’.

AFH said its approach allows investments to be retained on existing platforms and products ‘where appropriate’ but allows AFH to move clients ‘to our cost-effective discretionary service where a clear benefit to the client can be demonstrated’.

AFH has now announced three new business targets to be achieved in the next three to five years:

  • FuM of £10 billion;
  • annual revenues of £140 million; and,
  • an underlying Ebitda margin of 25% on revenue.

Its previous three-to-five-year target of £5 billion funds under management, set at the start of 2017, was reached after the company’s year-end, said chief executive Alan Hudson. The second of its 2017 targets was to reach revenues of £75 million. Hudson said the board was ‘confident’ this would be met ‘ahead of expectations’.

In July 2018, AFH announced platform fees would no longer be charged to clients on the AFH Direct platform. AFH said it believed this move would ‘drive further growth for the company as new clients and potential acquisition targets recognise the benefits of joining the AFH community’.

It said the reduction in platform fees had contributed to a reduction in the total fees paid by clients. However, AFH has not provided a breakdown of client costs.

A second measure it said had reduced costs was the introduction of segregated mandates. This model is similar to that used by St James’s Place and others. Over 2018, seven equity funds were established using independent fund management groups to manage the portfolios.

Initial financial planning fee revenue totalled £12.2 million, an increase of £2.2 million (23%) above AFH’s 2017 results.

Ongoing management fee revenue increased to £29.3 million (up from £20.6 million), reflecting the increased funds under management, which grew to £4.4 billion during the year. AFH attributed fund growth to net organic inflows together with assets attached to acquisitions completed during the year.

Its ratio of recurring income rose to 71% (2017: 69%).

AFH said the average discretionary client portfolio is valued at around £200,000 and is ‘based on their risk appetite and is focused on wealth preservation’.

However, clients with larger portfolios who wish for a more traditional stockbroking service are offered access to AFH Private Wealth, with operations in Bromsgrove and Colwyn Bay. This was established in 2016 and now manages over £150 million of client assets.

The AIM-listed advisers reported an increase in earnings per share of 43% and a 50% increase in dividend per share.

Two fundraising exercises undertaken during the year raised £32.5 million, representing a 36% dilution to shareholders.

A further £7.6 million has been used for the acquisition of an additional four businesses, with a potential value of £19 million, since the year end.

Read more: the IFAs who sold their businesses in 2018

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