- 8% organic growth in assets under management to £7.3bn
- Strong return on real assets
- Risk to earnings skewed to the upside
Organic growth shows no signs of slowing down Gresham House (GHE:810p), a fund manager specializing in renewable energy generation (solar, wind, and battery storage farms), forestry, infrastructure, and public and private equity investment strategies.
Having reported a 91% rise in H1 underlying operating profit to £13.2m on a 63% rise in revenue to £38.5m, and with the operating leverage of the business highlighted by the five percentage point increase in the operating margin to 35 percent. cent, the risk to earnings remains firmly skewed to the upside. In fact, Gresham House has already made half of analysts’ full-year operating profit estimates of £26.3m, supporting brokerage house Canaccord Genuity’s forecast for 17 per cent growth. in earnings per share (EPS) for 2022 at 53 pence.
The defensive qualities of the group’s revenue stream certainly stand out in today’s uncertain macroeconomic environment. Although assets under management (AUM) from both the public and private equity strategies fell 8 per cent to £1.77bn in the first half, this was more than offset by double-digit AUM growth in the real asset divisions of Gresham House: Forestry (11 per cent). £3.3bn growth, making the group the UK’s largest forest manager); new energy and sustainable infrastructure (AUM up 24 per cent to £1.5bn); and housing (59 per cent increase to £700m).
Overall, the 11% growth in total AUM to £7.3bn compares favorably with the 21% decline in the FTSE 250 Index in the comparable six-month trading period. The risk to Canaccord Genuity’s year-end AUM target of £7.5bn looks strongly skewed to the upside. In addition, the directors are using the group’s cash-rich balance sheet (cash and liquid assets of £69.7 million (182 pence per share)) to develop renewable energy battery storage projects that could generate additional earnings.
However, despite posting an enviable record of outperformance since I started hedging the stock, at 312.5 pence, in my Portfolio of Trading Shares 2016, and paying total dividends per share of 25.75 pence in the meantime, it’s still possible to buy the stock at modest forward price-to-earnings ratios of 13.7 (2023) and 11.9 (2024). These are low multiples for a business projected to generate 27 per cent compound EPS growth over that two-year forecast period based on year-end AUM of £8.6bn and £9.8bn, respectively.
So even though Gresham House’s share price is down 6 percent since I covered the pre-close trading update (‘A green energy winner’, IC, July 22, 2022), the stock remains firmly on my shopping list. To buy.
Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.
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