Record — Broadening product and generating interest

Record (LSE: REC)

Last close As at 27/03/2024

GBP0.62

−0.60 (−0.96%)

Market capitalisation

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Research: Financials

Record — Broadening product and generating interest

Record’s average assets under management equivalent (AUME) were stable in the first half. Management fees were modestly lower as a result of a mix change towards lower management fee rate products, although some of these are capable of earning performance fees. Evidencing the potential to offset management fees forgone, the period saw crystallisation of a performance fee which allowed profit to increase by over 6%. For the future Record’s continued focus on new and enhanced products should help defend and increase the client base and AUME levels while performance fees could generate positive earnings surprises.

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Written by

Financials

Record

Broadening product and generating interest

H119 results

Financial services

4 December 2018

Price

32.15p

Market cap

£64m

Net cash (£m) at end-September 2018

22.8

Shares in issue

199.1m

Free float

32%

Code

REC

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.0)

(22.6)

(33.4)

Rel (local)

(3.0)

(17.1)

(30.7)

52-week high/low

51.1p

29.5p

Business description

Record is a specialist independent currency manager that provides a number of products and services, including passive and dynamic hedging, and a range of currency for return strategies, including funds and customised segregated accounts.

Next event

Q319 trading update

18 January 2019

Analysts

Andrew Mitchell

+44 (0)20 3681 2500

Martyn King

+44 (0)20 3077 5745

Record is a research client of Edison Investment Research Limited

Record’s average assets under management equivalent (AUME) were stable in the first half. Management fees were modestly lower as a result of a mix change towards lower management fee rate products, although some of these are capable of earning performance fees. Evidencing the potential to offset management fees forgone, the period saw crystallisation of a performance fee which allowed profit to increase by over 6%. For the future Record’s continued focus on new and enhanced products should help defend and increase the client base and AUME levels while performance fees could generate positive earnings surprises.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS**
(p)

P/E
(x)

Yield
(%)

03/17

23.0

7.9

2.90

2.00

11.1

6.2

03/18

23.8

7.3

2.98

2.30

10.8

7.2

03/19e

23.7

6.7

2.69

2.30

11.9

7.2

03/20e

22.4

5.7

2.31

2.32

13.9

7.2

Note: *EPS are diluted and **DPS excludes special dividends.

H119 results

Record’s first half results showed total revenue up 3.4% to £12.6m including a performance fee of £1m. We calculate that average AUME in sterling terms was broadly similar to H118. Management fees alone were down 4.5%, partly reflecting greater adoption of the enhanced passive hedging product: some of these mandates carry a lower management fee but are capable of earning performance fees. Also affecting revenue was last year’s termination or switch from dynamic to passive hedging by UK clients. Costs were held steady allowing pre-tax profit to increase by 6.5% and diluted EPS by 5.9%. The interim dividend was unchanged at 1.15p and Record remains committed to its policy of paying out excess earnings in special dividends. The group retains a buffer of c £14m over its regulatory requirement and own cash (excluding cash in seed funds) of £17.5m.

Outlook: Product range and services develop further

Uncertain macro conditions continue to facilitate the marketing of Record’s services. Examples of work to innovate and broaden the product range include: extension of the licensing agreement with WisdomTree for a new range of ETFs, a framework for hedging EM currencies, a new range-trading strategy within Multi-Strategy and the development of ways of integrating ESG factors into currency management. In Q319, $2.5bn of passive hedging mandates are set to terminate but Record reports a good range of client prospects spread by type of client, product and geography.

Valuation

Record shares trade at a below peer-group average EV/EBITDA multiple for the current calendar year (7.0x) and similar to the peer average for FY20 (8.5x). Our estimates exclude potential AUME inflows and uncrystallised performance fees.

Company profile

Founded in 1983 by chairman Neil Record, the company’s main activity is the provision of currency hedging services to clients, including public and private defined benefit pension schemes and other institutional investors. Other contributors to revenue are currency for return, multi-product and related services.

In H119, passive hedging accounted for 53% of management fees. Passive hedging mandates tend to be sticky and we estimate that revenues from these clients will cover c 85% of Record’s operating expenditure before variable remuneration in the current year. Record emphasises that its passive hedging mandates are tailored to customer requirements and may include additional services such as collateral management. Dynamic hedging also targets systematic reduction of currency risk while seeking to modify the level of hedging to allow clients to gain some benefit from weakness in their own currency. Currency for return strategies aim to exploit stable inefficiencies in currency markets and include a number of strategies: forward rate bias, emerging market currencies, momentum, value and, recently introduced, range-trading (together “multi-strategy”). The Multi-product category includes mandates where hedging and return-seeking strategies are combined on a bespoke basis.

We have collated Record’s detailed disclosure analysing AUME and management fee exposure in Exhibit 1.

Exhibit 1: Record profile in numbers (H119)

Analysis by strategy

AUME (%)

Management fees (%)*

Fees (bp)

Dynamic hedging

7.1

20.6

14

Passive hedging

83.7

52.5

3

Currency for return

3.9

7.9

11

Multi-product

4.9

19.0

19

Cash

0.4

N/A

N/A

Total

100.0

100.0

4.9

Value

$61.8bn

£11.4m

Client analysis

Number (by financial year)

Type

% AUME

Concentration

% fees

2014

48

Public pension funds

42

Top 10

75

2015

55

Corporate pension funds

39

Next 10

18

2016

58

Foundations & trusts

8

Balance

7

2017

59

Other

11

2018

60

H119

66

100

100

Geographical analysis

AUME progression ($bn)

By Country

Mgmt fees %

% AUME

2014

51.9

Switzerland

46

Europe and RoW

77

2015

55.4

USA

26

North America

12

2016

52.9

UK

8

UK

11

2017

58.2

Other

20

2018

62.2

100

100

H119

61.8

Underlying asset class exposure of dynamic and passive hedging AUME (%)

Dynamic

Passive

Est. % of hedging fees

Equity

95

27

46

Fixed income

-

41

29

Other

5

32

24

100

100

100

Source: Record, Edison Investment Research. Note: *Management fees exclude performance fees.

The first section of the table underlines the predominance of hedging for both AUME and fees, despite the relatively low fee rate applied in passive hedging. The client analysis shows that the number of clients has increased noticeably since 2013, albeit the level was broadly stable between FY16 and FY18. The institutional nature of the market Record is addressing means there is quite a high concentration of fees from the top 10 clients (75%). The third section highlights the importance of Switzerland as a market (primarily for hedging services) and the progression of AUME in recent years. Finally, the analysis of the exposure of the dynamic and passive hedging mandates to different underlying asset classes shows that, on our estimate, around 46% of hedging fees are related to equity assets and approaching 30% to fixed income assets.

Recent AUME changes and first half results

AUME

As announced in its October trading update, Record’s AUME (in US$ terms) was down slightly during H119 with neutral net flows for this period. Market movements (see underlying asset exposures in Exhibit 1) were positive while a negative FX move more than offset a positive scaling effect for mandates with a volatility target. This left a small overall reduction in the six months of $0.4bn or 1% (see Exhibit 2 for further details). Reflecting weakness in the pound, AUME in sterling terms increased by 7% during the first half and by 4% compared with end-H118. Based on reported quarter-end figures, we calculate that sterling-denominated average AUME increased by c 1% for H119 versus H118.

Exhibit 2: AUME changes

Year-end March

Q418

Q119

Q219

Q119

Q219

H119

$bn

AUME

AUME

AUME

Net flows

Net flows

Net flows

Dynamic hedging

4.3

4.3

4.4

0.4

0.0

0.4

Passive hedging

53.0

52

51.7

(0.4)

(0.6)

(1.0)

Currency for return

1.6

2.3

2.4

0.6

0.0

0.6

Multi-product

3.0

3.0

3.0

0.0

0.0

0.0

Cash and futures

0.3

0.3

0.3

0.0

0.0

0.0

Total

62.2

61.9

61.8

0.6

(0.6)

0.0

Markets

1.2

0.1

1.3

FX and scaling for mandate volatility targeting

(2.1)

0.4

(1.7)

Total change

(0.3)

(0.1)

(0.4)

Source: Record, Edison Investment Research

H119 results

The profit and loss for H119 with analysis of changes since H118 and H218 is set out in Exhibit 3. Comments on key areas are given in the following paragraphs with comparisons between H119 and H118 unless stated.

Revenue in total was £12.6m, vs £12.2m in H118 (+3%). There was a performance fee of £1m crystallised in the first quarter relating to performance in the six-month period to end June. There were no performance fees in the prior year period and none were earned in the second quarter. While average AUME was broadly stable in sterling terms, management fee income of £11.4m was down 4.5% partly reflecting clients moving to enhanced passive hedging mandates, some of which earn lower management fees but are capable of earning performance fees. The termination or switch from dynamic to passive hedging by UK clients last year also affected revenues.

Fee margins on a like-for-like basis were reported to be broadly stable (see top right section of Exhibit 1 for H119 levels) although mix changes between and within categories has resulted in movements in the averages. While the rounded margin for passive hedging is unchanged at 3bp we calculate a small reduction from 3.3bp to 3.1bp reflecting the adoption of enhanced passive hedging already highlighted. The most prominent change has been in currency for return where the average fell from 17bp to 11bp reflecting the addition of a new mandate with a management/performance fee structure, the scaling up of AUME for mandates with volatility targets (here the fee does not change with AUME so the margin contracts or expands with scaling) and a bespoke mandate with a lower fee rate commensurate with its specification. The overall average we calculate for H119 is 5.2bp compared with 5.4bp for the prior year period or 5.1bp for FY18.

Administrative costs were virtually unchanged with personnel costs before group profit share up 3% and other costs down £0.2m, which is equivalent to the one-off costs related to the tender offer incurred in the same period last year.

This allowed pre-tax profits to increase by 6.5% to £4m and after a higher tax charge (20% versus 15%) earnings per share (diluted) increased from 1.52p to 1.61p (+5.9%).

The interim dividend was unchanged at 1.15p and the group remains committed to its policy of paying out excess earnings subject to capital and investment requirements.

Exhibit 3: H119 P&L analysis

£000

H118

H218

H119

Change vs H118

Change vs H218

Dynamic hedging

2,801

2,310

2,351

-16.1%

1.8%

Passive hedging

6,400

6,169

5,999

-6.3%

-2.8%

Currency for return

826

977

899

8.8%

-8.0%

Multi-product

1,927

2,087

2,172

12.7%

4.1%

Management fees

11,954

11,543

11,421

-4.5%

-1.1%

Performance fees

0

0

1,048

N/A

N/A

Other income

249

88

155

-37.8%

76.1%

Total revenue

12,203

11,631

12,624

3.4%

8.5%

Cost of sales

-165

-146

-194

17.6%

32.9%

Gross profit

12,038

11,485

12,430

3.3%

8.2%

Administrative expenses

-8,330

-8,094

-8,295

-0.4%

2.5%

Other income/expense

49

124

-138

N/A

N/A

Operating profit

3,757

3,515

3,997

6.4%

13.7%

Net finance income

36

20

41

13.9%

105.0%

Profit before tax

3,793

3,535

4,038

6.5%

14.2%

Taxation

-553

-629

-822

48.6%

30.7%

Profit after tax

3,240

2,906

3,216

-0.7%

10.7%

Diluted EPS (p)

1.52

1.39

1.61

5.9%

16.1%

DPS (p)

1.15

1.65

1.15

Tax rate

15%

18%

20%

Source: Record, Edison Investment Research

Turning to performance, Exhibit 4 sets out currency for return fund, index and composite performance in the half year and since inception. Unsurprisingly, the recent pronounced weakness in emerging markets is evident in the emerging markets strategy while the newly launched Multi-Strategy Fund has had a weak start. Despite a weaker period in the half year both the FTSE FRB Index Fund and the Multi-Strategy Composite remain in positive territory since inception.

Exhibit 4: Currency for return investment performance to 30 September 2018

Gearing

Half-year return

Return SI pa

Volatility SI pa

Inception

Fund

Record FTSE FRB10 Index Fund

1.8

1.55%

1.55%

6.88%

Dec-10

Record Emerging Market Currency Fund

1.0

-3.61%

0.93%

6.39%

Dec-10

Record Currency Multi-Strategy Fund

 

-9.60%

N/A

N/A

Feb-18

Index/Composite returns

FTSE Currency FRB10 GBP excess return

 

0.77%

2.21%

4.54%

Dec-87

Record Multi-Strategy Composite (4% target volatility)

 

-3.67%

0.97%

2.68%

Jul-12

Source: Record. Note: All GBP base apart from Record Multi-Strategy Composite, which is on a US$ base and shows excess returns gross of fees.

Record has also provided figures showing that its enhanced passive hedging strategy has added value for clients relative to a fixed tenor benchmark. This shows the strategy adding 3bp in the six months to end September and 13bp per annum in the period since inception in October 2014. The performance fee crystallised in the first quarter is also likely to be a positive indicator on this front although Record does not specify the type of mandate(s) that generated the fee.

Outlook, estimate changes

The macro backdrop remains generally supportive for Record in its conversations with potential clients. Currency volatility between the euro, US dollar and Swiss franc (Exhibit 5) has actually been subdued compared with recent history, but prevailing geopolitical uncertainties highlight the potential for tail risks to emerge. This, together with Record’s own work on enhancing service levels and developing new products, has contributed to a good spread of interest from potential clients spread by geography, product and type of fund.

Exhibit 5: Implied volatility for one year at the money options CHF and EUR vs USD

Source: Bloomberg. Note: CHF = Swiss franc, EUR = euro, USD = US$.

In its Q219 trading update Record announced that it had been given notification of termination of passive hedging mandates for two commercial relationships that will affect up to seven clients (counted as separate legal entities) and up to $2.5bn of AUME (4.8% of passive hedging AUME at end H119). The outflow is expected to take place during the current quarter and, although pricing pressures remain a feature in this product area in particular, these terminations reflect specific developments relating to the underlying funds. These included a decision to move investments into a unitised structure as part of which the client will use the administrator to provide a hedging service.

As shown below, our estimates are barely changed following the adjustments we made with the trading update in October. Further details are set out in the financial summary.

Exhibit 6: Estimate changes

 

Revenue (£m)

PBT (£m)*

EPS (p)*

DPS (p)**

 

Old

New

% chg 

Old

New

% chg 

Old

New

% chg 

Old

New

% chg 

03/19e

23.4

23.7

1%

6.6

6.7

1%

2.69

2.69

0%

2.30

2.30

0%

03/20e

22.4

22.4

0%

5.7

5.7

0%

2.31

2.31

0%

2.32

2.32

0%

Source: Edison Investment Research. Note: *Normalised. **Dividend excludes any special payment.

The group figure for net cash and money market instruments managed as cash was similar to the year-end figure at £22.8m. Stripping out the cash held by seed funds (non-controlling interests) gives an own cash figure of £17.5m.

Valuation

Exhibit 7 provides an updated version of our valuation table showing Record in the context of a group of UK asset managers. Record is clearly differentiated by its role as a specialist currency manager but its fees are primarily based on the size of AUME so, like the asset managers, it is exposed to movements in underlying equity and fixed income markets and flows.

Exhibit 7: Earnings and EBITDA multiples for UK fund managers

Price (p)

Market capitalisation (£m)

P/E (x)

EV/EBITDA (x)

Ashmore

379

2,700

16.7

11.2

City of London Inv Group

387

103

9.9

6.5

Impax Asset Management

206

268

15.2

36.6

Jupiter

328

1,501

10.2

6.0

Liontrust

628

317

13.9

13.3

Man Group

150

2,346

9.5

8.0

Polar Capital

518

488

11.7

9.2

Schroders

2,590

7,171

11.7

10.1

Average

12.4

12.6

Record

32

63

11.7

6.8

Source: Thomson Reuters, Edison Investment Research. Note: P/E and EV/EBITDA based on calendar 2018 estimated earnings and last reported EBITDA, respectively. Priced as at 3 December 2018.

Record shares trade on a calendar 2018 P/E multiple that is below the group average, as is the historical EV/EBITDA ratio. The earnings for calendar 2018 do benefit from a proportion of the £1m performance fee mentioned earlier and our FY20 Record earnings estimate does not include any performance fees; for that year Record is trading on a P/E of 13.9x and an EV/EBITDA of 8.5x compared with peer multiples of 11.5x and 8.3x respectively.

Exhibit 8: Financial summary

£'000s

March 

 

2015

2016

2017

2018

2019e

2020e

PROFIT & LOSS

 

 

 

 

 

 

 

 

Revenue (underlying)

 

 

20,865

21,246

22,952

23,834

23,683

22,418

Revenue

 

 

21,057

21,134

22,952

23,834

23,683

22,418

Operating expenses

 

 

(13,521)

(14,344)

(15,365)

(16,735)

(16,940)

(16,829)

Other income/(expense)

 

 

0

0

157

173

(138)

0

Operating Profit (before amort. and except.)

 

 

7,536

6,790

7,744

7,272

6,605

5,589

Finance income

 

 

146

143

112

56

92

91

Profit Before Tax

 

 

7,682

6,933

7,856

7,328

6,697

5,680

Taxation

(1,708)

(1,523)

(1,540)

(1,182)

(1,339)

(1,079)

Minority interests

 

 

(192)

131

0

0

0

0

Attributable profit

 

 

5,782

5,541

6,316

6,146

5,358

4,601

Normalised revenue (underlying)

 

 

20,865

21,246

22,952

23,834

23,683

22,418

Operating expenses (excl. dep'n and amortisation)

 

 

(13,206)

(14,023)

(15,023)

(16,430)

(16,655)

(16,544)

EBITDA

 

 

7,659

7,223

7,929

7,404

7,028

5,874

Depreciation and amortisation

 

 

(315)

(321)

(342)

(305)

(285)

(285)

Other income/(expense)

 

 

0

0

157

173

(138)

0

Normalised Operating profits

 

 

7,344

6,902

7,744

7,272

6,605

5,589

Finance income

 

 

146

143

112

56

92

91

Profit Before Tax (norm)

 

 

7,490

7,045

7,856

7,328

6,697

5,680

Normalised revenue/AuME (excl. perf fees) bps

 

 

6.2

6.0

5.2

5.1

4.8

4.8

Normalised operating margin (%)

 

 

35.2

32.5

33.7

30.5

27.9

24.9

Average Number of Shares Outstanding (m)

 

 

218.4

217.9

218.0

206.5

199.1

199.1

Basic EPS (p)

 

 

2.66

2.55

2.91

3.03

2.73

2.34

EPS - normalised (p)

 

 

2.65

2.54

2.90

2.98

2.69

2.31

Dividend per share (p)

 

 

1.65

1.65

2.00

2.30

2.30

2.32

Special dividend per share (p)

 

 

0.00

0.00

0.91

0.50

0.43

0.00

Total dividend (p)

 

 

1.65

1.65

2.91

2.80

2.73

2.32

BALANCE SHEET

 

 

 

 

 

 

 

 

Fixed Assets

 

 

3,273

423

1,228

2,339

2,212

2,217

Intangible Assets

 

 

504

299

245

228

363

448

Tangible Assets

 

 

129

81

881

910

740

660

Investments

 

 

2,567

0

0

1,115

1,075

1,075

Deferred tax assets

 

 

73

43

102

86

34

34

Current Assets

 

 

37,053

40,541

44,247

29,737

30,767

29,969

Debtors

 

 

6,324

5,695

6,972

6,775

7,381

7,510

Cash

 

 

12,010

21,720

19,120

12,498

13,405

12,477

Money market instruments

 

 

18,100

13,020

18,102

10,198

9,804

9,804

Other

 

 

619

106

53

266

178

178

Current Liabilities

 

 

(4,522)

(3,256)

(8,644)

(5,525)

(6,729)

(6,789)

Creditors

 

 

(2,949)

(2,372)

(3,013)

(2,630)

(3,443)

(3,503)

Financial liabilities

 

 

0

0

(4,779)

(2,467)

(2,361)

(2,361)

Other

 

 

(1,573)

(884)

(852)

(428)

(925)

(925)

Net Assets

 

 

35,804

37,708

36,831

26,551

26,251

25,397

Minority interests

 

 

3,876

4,019

0

0

0

0

Net assets attributable to ordinary shareholders

 

31,928

33,689

36,831

26,551

26,251

25,397

No of shares at year end

 

 

217.5

217.2

221.4

199.1

199.1

199.1

NAV per share p

14.7

15.5

16.6

13.3

13.2

12.8

CASH FLOW

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

6,472

5,509

7,107

2,746

6,318

4,726

Capex

 

 

(128)

(29)

(899)

(236)

(50)

(140)

Cash flow from investing activities

 

 

0

(39)

(189)

(82)

(200)

(150)

Dividends

 

 

(3,266)

(3,750)

(3,592)

(6,810)

(5,541)

(5,454)

Other financing activities

 

 

(2,571)

7,737

(5,163)

(2,386)

106

91

Other

 

 

0

282

136

146

274

0

Net Cash Flow

 

 

507

9,710

(2,600)

(6,622)

907

(927)

Opening cash/(net debt)

 

 

11,503

12,010

21,720

19,120

12,498

13,405

Other

 

 

0

0

0

0

0

0

Closing net (debt)/cash

 

 

12,010

21,720

19,120

12,498

13,405

12,477

Closing net (debt)/cash inc money market instruments

30,110

34,740

37,222

22,696

23,209

22,281

AUME

 

 

 

 

 

 

 

 

Opening ($'bn)

 

 

51.9

55.4

52.9

58.2

62.2

63.3

Net new money flows

 

 

2.9

(1.4)

3.1

(1.2)

0.0

0.0

Market/other

 

 

0.6

(1.1)

2.2

5.2

1.1

1.2

Closing ($'bn)

 

 

55.4

52.9

58.2

62.2

63.3

64.5

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Record and prepared and issued by Edison, in consideration of a fee payable by Record. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

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United States

Neither this Communication nor any copy (physical or electronic) of it may be (i) taken or transmitted into the United States of America, (ii) distributed, directly or indirectly, in the United States of America or to any US person (within the meaning of regulations Regulation S made under the US Securities Act 1933, as amended), (iii) taken or transmitted into or distributed in Canada, Australia, the Republic of Ireland or the Republic of South Africa or to any resident thereof, except in compliance with applicable securities laws, (iv) taken or transmitted into or distributed in Japan or to any resident thereof for the purpose of solicitation or subscription or offer for sale of any securities or in the context where the distribution thereof may be construed as such solicitation or offer, or (v) or taken or transmitted into any EEA state other than the United Kingdom. Any failure to comply with these restrictions may constitute a violation of the securities laws or the laws of any such jurisdiction. The distribution of this Communication in or into other jurisdictions may be restricted by law and the persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Record and prepared and issued by Edison, in consideration of a fee payable by Record. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Neither this Communication nor any copy (physical or electronic) of it may be (i) taken or transmitted into the United States of America, (ii) distributed, directly or indirectly, in the United States of America or to any US person (within the meaning of regulations Regulation S made under the US Securities Act 1933, as amended), (iii) taken or transmitted into or distributed in Canada, Australia, the Republic of Ireland or the Republic of South Africa or to any resident thereof, except in compliance with applicable securities laws, (iv) taken or transmitted into or distributed in Japan or to any resident thereof for the purpose of solicitation or subscription or offer for sale of any securities or in the context where the distribution thereof may be construed as such solicitation or offer, or (v) or taken or transmitted into any EEA state other than the United Kingdom. Any failure to comply with these restrictions may constitute a violation of the securities laws or the laws of any such jurisdiction. The distribution of this Communication in or into other jurisdictions may be restricted by law and the persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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