AFH Financial’s growth plan adds up
AIM-quoted AFH Financial (AFHP:AIM) has grown rapidly in the last few years to become one of the UK’s leading financial planning led-wealth managers with more than £5bn of funds under management (FUM).
Thanks to strong organic growth and the potential to add more customers through well-timed acquisitions, AFH could easily double its assets and profits in the near future.
The business was set up nearly 30 years ago by chartered financial planner and chief executive Alan Hudson to provide advice to high net worth clients.
The firm’s 250 independent financial advisers (IFAs) are highly experienced in helping customers plan their financial future and they are backed up by in-house investment experts.
Unusually, client funds are managed in-house on an advisory or discretionary basis rather than being outsourced to big-name fund managers.
ORGANIC GROWTH HELPED BY STRUCTURAL DRIVERS
In the year to the end of October underlying growth in assets was 13% or £440m, marking a third successive year of double-digit growth.
Like-for like turnover was up 21% thanks to the increase in assets and greater demand for financial advice, while the gross margin was steady at 55% of revenues.
As well as providing advice and managing assets, AFH has a successful protection broking division offering life insurance and critical injury cover.
Historically these products were sold by the major banks on a face to face level but as the banks cut back on staff and pulled back from the high street a gap appeared in the market which AFH was quick to fill.
In under two years the business has grown to 200 advisers and turnover of £9m with a gross margin of 45%.
WELL-EXECUTED ACQUISITIONS ADD FURTHER GROWTH
Like many other service industries, the IFA business is highly fragmented and AFH has seized the opportunity to acquire high-quality firms and teams often for five times earnings or less.
The firm has its own acquisitions team and thanks to its strong balance sheet, bolstered by organic cash-flow growth and two timely cash raises last year, it is equipped for further acquisitions.
Having already hit two of its three 2020 targets by the end of 2018, £5bn of FUM and a 20% EBITDA (earnings before interest, tax, depreciation and amortisation) margin, the firm has set out new targets.
In the next three to five years it is aiming for FUM of £10bn, an EBITDA margin of 25% and revenues of £140m.