Harwood Wealth Management prospers through consolidation

The small cap is in the middle of a rapid buy-and-build strategy
Thursday 09 Nov 2017 Author: David Stevenson

Hampshire-based Harwood Wealth Management (HW.:AIM) is a highly acquisitive business in the financial planning and discretionary wealth management space.

It has acquired over 53 businesses to date, including four in the first half of 2017 and two more recently. The four businesses bought in the first half period cost an average of £2.1m each and added an extra £1bn in assets under influence (AUI) to the firm.

This method of increasing the size of a business is also employed by Harwood’s much larger peer St James’s Place (STJ). However non-executive chairman Peter Mann differentiates his business from those similar to wealth managers like St James’s Place.

Mann says those businesses which join up with the Harwood brand are free to operate in their own way. There are significant advantages to using the company’s infrastructure including its back office functions for reporting purposes but they are not mandated to do so.

Harwood is making hay as the IFA market consolidates due to rising costs of doing business. Drivers include staying regulatory compliant on top of further legislation in the financial advice space.

The time is now

Mann says it’s a good time to be in financial services as people need advice about pension freedom.

Since the Government announced its pension freedom policy in the 2014 budget, more people have needed to seek advice on what to do with their pension.

According to the company, post pension reform, it receives fee revenue from customers into their 70s. Previously, Harwood would stop receiving revenue when clients were age 65.

N+1 Singer analyst Andrew Watson says Harwood is ‘profitable and highly cash generative’. He estimates the company will end 2017 with £18.1m net cash position.

Watson forecasts 3.2p dividend per share for 2018. Despite Mann describing the company as a ‘growth’ stock, the dividend figure implies a yield of 2.1% so investing in Harwood can provide some income as well.

We believe Harwood will continue to create value by consolidating the IFA market, having raised £10m via a share placing in March to add to the company’s fire power.

The company’s share price has increased by 91% since its stock market flotation in March 2016 and Watson sees ‘intrinsic value north of 230p a share’. (DS)

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