Asset management Liontrust (LIO) has outstanding prospects thanks to soaring demand for ESG-related investment products and a cracking reputation of running successful funds. Don’t be put off by its share price having already enjoyed a good run. We think it is only in the early stages of a massive re-rating.

Liontrust is forecast to grow earnings per share by more than 20% a year for the next three years. This is even after earnings have been upgraded many times over the past few years.

Its shares may seem pricey based on estimates for the current financial year ending 31 March, trading on a price-to-earnings multiple of 22. However, this is a classic growth stock whereby the rating quickly falls to 17-times for the forthcoming financial year and 14-times for the period ending March 2022.

Investors are getting a decent dividend which you tend not to associate with fast growth stocks. Numis forecasts 45p in dividends for the year ending March 2021, equating to a 3.4% yield.

One of key things we like about Liontrust is the clarity of its investment processes. The fund managers are extremely clear about what they desire from companies in order to make an investment. The asset manager also has high conviction with fairly concentrated portfolios which looks very different to the benchmark indices.

Following a meeting with some of the management, Numis said they believe most of the Liontrust funds are ‘highly scalable’ because they generally contain larger businesses.

Its Liontrust Income Fund (B8L7B35) is seen as having the biggest potential in its product range to attract more investor money in the short-term. This is thanks to a good performance track record and investors eager to find replacement income products after being let down by Woodford’s two income funds.

A big emphasis on sustainability is also working in its favour, with investors hungry to put their money into funds that provide exposure to companies helping the world to be a better place. It has funds with both ‘sustainable’ and ‘ethical’ badges.

Retail investors have driven demand for these products from Liontrust, yet the asset manager now says there is growing interest from institutional investors and it is optimistic about increasing flows from non-UK investors.

Liontrust ended 2019 with £19.1bn of assets under management and enjoyed £836m of net inflows in the final three months of the year. While equity markets can be unpredictable and there is no guarantee that Liontrust will continue its current level of success, it certainly seems to have the right ingredients to flourish in 2020 and beyond.

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