Financial Grime - 1 November

Nov 02, 2018 / Financial Grime

  • Fund Managers -Colonial First State Group, owned by Commonwealth Bank of Australia is selling to Mitsubishi for £2.2bn. That’s a PE multiple of 17.5X or 1.9% of AUM. Standard life Aberdeen  trades on 11.9X while Jupiter trades on 10.4X, and Schroders trades on 12X.  Prize for anyone who catches their CEO booking flights to Japan.
  • Lenders – Independent Growth Finance, a private company has announced a new wholesale funding line from RBS, HSBC and ABN Commercial Finance to support the 70% loan book growth in lending working capital to SME’s that it reported in the year to September. This is just a day after the budget increased the availability of tax relief for investment in plant and machinery from £200k to £1m.  That’s going to be very good for lending on diggers and dumpers like PCF Group Plc do.  Trades at 12.3X Sept 19 PER.

SIPP Court Actions  

  • Yesterday I spoke with some of the SIPP providers about their views of the FOS v Berkeley Burke case where the court judged that the SIPP administrator was liable for the failed investments inside a SIPP. This case will now be tried in the high Court next year –and if it is again unfavourable will be very likely to then go to the court of appeal.
  • There are a number of group actions in the pipeline:
  1. FOS v Berkley Burke – high court next year
  2. Adams vs Carey – high court judgement due soon post March hearing
  3. Elyssian Fuels
  4. Liberty SIPP
  5. Guardian Pension Consultants
  6. Gracechurch
  • It is likely to be a few years until the issue is clarified as these cases drag through the courts.  Having spoken with all the quoted companies it is clear that these cases are against the small SIPP providers some of which have been acquired by the larger companies but the liability rests with the original company which has sufficient PI cover for them to have acquired the business from them. I was however interested to learn that there is no regulatory requirement for a SIPP administrator to have PI cover.
  • Outcomes appear to be in my view:
  1. An increasing tendency for SIPPs to be pushed towards balanced mandates at the lower cost end.
  2. Operators will fail creating opportunities for the larger operators to consolidate the failed books of business
  3. Fees will go up
  4. PI costs will go up as will coverage levels
  5. Negative press for the industry could subdue demand
  • Conclusion The majority of these outcomes are positive for the quoted operators. In terms of consolidation it seems likely that Guardian Pension Consultants will be a consolidation target while Curtis Banks, Mattioli Woods and STM will be prowling round trying not to look too much like predators.