Increased revenue guidance at currency and derivatives specialist Record (REC) presents investors with an opportunity to acquire shares in a company that is going places and at an undemanding valuation.

Record has $83.1 billion (£67.8 billion) in assets under management equivalent for institutional clients, fund managers and corporate entities worldwide. As a currency expert, it manages the impact of foreign exchange and not the underlying assets.

Passive currency hedging accounts for the bulk of assets under management (74.9%), followed by dynamic currency hedging (12.2%).

It reported £35.1 million revenue in the year to 31 March 2022 and is targeting approximately £60 million in three years’ time.

If achieved, it would mean current analyst forecasts are far too low. According to broker Panmure Gordon the revenue goal would imply at least £21 million pre-tax profit tax in the year to March 2025. That’s about 50% above its current forecast (£13.6 million) for that year.

Assuming there was no change to the company’s dividend policy and the revenue goal is hit, total payments to shareholders could be as much as 20p per share over the next three years combined, according to Panmure Gordon. That’s equivalent to 28% of the current share price.

Record believes earnings growth will be aided by new product offerings and partnerships. For example, since debuting in June 2021 via a partnership with UBS Global Wealth Management, the Record EM Sustainable Finance Fund has increased from $750 million to $1.2 billion in size.

The company is in the process of launching a municipal loan fund focused on the German institutional market. This will be in partnership with Universal-Investment and will include a yield-enhancing component provided by one of Record’s existing currency management clients.

These products illustrate how Record is using its currency skills and expertise to manage other assets and, in the process, earn higher fees.

The shares are currently trading on 14.5 times earnings forecasts for the year to March 2023, falling to 13.4 in 2024 and 13.1 in 2025. However, those ratios would be much lower if forecasts were upgraded in line with Record’s 2025 goal.

We sense that brokers are being cautious with their estimates and not simply hiking them because the company has bold ambitions. That’s positive for investors as it means that expectations aren’t set too high, and the share price could react positively each time good news is reported.

We wouldn’t be surprised if the earnings estimates are slowly nudged up each time Record updates on trading, assuming its growth plan is working.

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