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Wealth manager Frenkel Topping is investing for growth
Wealth manager Frenkel Topping (FEN:AIM) can genuinely be described as niche. Its clientele includes those who have life changing injuries as well as elderly patients who are under the supervision of the court.
The £34m company provides financial advice and asset management services to personal injury and clinical negligence victims.
Its results for 2017 released in April showed adjusted pre-tax profit growing by 73% to £2.6m, with c80% of its £7.3m revenue in the year classified as recurring.
Going forward, executive chairman Paul Richardson says he expects the size of the vulnerable client market to increase this year and for his company to at least grow in line with this increase.
The company is close to the decision makers who can impact the fortunes of Frenkel. For instance, in February last year, the Lord Chancellor got the insurance sector fired up with proposed changes to the Ogden Discount Rate, the rate at which compensation is calculated.
Richardson says Frenkel Topping is part of the Association of Personal Injury Lawyers Association working party committee on Ogden.
Frenkel Topping is highly cash generative; for 2017 it generated £2.1m of cash from its operations. It also reported a 32% operating margin, superior to its peers AFH Financial (AFHP:AIM) and Harwood Wealth (HW.:AIM).
Although the company is investing in its business it is also a dab hand at spotting savings. When the company’s chief investment officer Jason Granite left at the end of 2017, it formed its own investment committee within its renamed Ascencia Investment Management business to ‘cost effectively fill the gap’.
Frenkel is also in a deal with Harwood Wealth which will provide portfolio research to the company through Harwood’s subsidiary Wellian Investment Solutions. Again Frenkel believes this is more cost effective than appointing a new chief investment officer.
According to the company’s house broker FinnCap, Frenkel trades on a lower rating to its two closest peers, which it has worked out to trade on an average 19.9 times forward earnings. Using FinnCap’s forecasts, Frenkel trades on 13.6 times 2019’s earnings.
Unlike some of its rivals, notably Harwood Wealth, Frenkel does not rely on acquisitions for growth, preferring instead to go down the organic route. In October 2017 it established the Frenkel Topping Training Academy which offers a two-year programme of training to support advisers on future growth.
Jeremy Grimes, research director at FinnCap, says ‘this is a highly valuable business and we set a 57p price target reflecting a high quality business in an attractive market’.
While there is minimal pre-tax profit growth expected in 2018, as a result of investment plans, the figure is forecast to go from £2.7m in 2018 to £3.1 in 2019 and £3.7m in 2020, according to FinnCap. (DS)