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Investors’ Chronicle: Mattioli Woods, Barratt Developments, PZ Cussons

BUY: Mattioli Woods (MTW)

The specialist wealth manager appears to have ridden out the worst of the autumn financial storms, writes Julian Hofmann.

The trials and tribulations in asset management are well documented over the past 12 months. While the big companies have struggled, smaller players such as Mattioli Woods have held the line against wholesale asset price falls and customer withdrawals, though even MTW recorded a 2 per cent fall in client assets to £14.6bn. In such a difficult market, the key differentiator seems to be whether asset managers also class themselves as general wealth managers, as this market segment has proved to be far more stable.

Mattioli Woods is no different in this regard. The company’s main strength continues to be the recurring fees from managing client money stashed in pensions, or discretionary investments. Recurring revenues made up nearly 90 per cent of total sales, up from 88 per cent last year. This was positive given that the half encompassed some of the worst of the market turmoil triggered by last autumn’s “mini” Budget. The rising interest rate environment is also interesting for the company, which has the option of deploying its capital in the money broking market and earning better interest, while doing the same for its Sipp customers.

Management attributes this to the company being able to earn fees from discretionary advice when markets are bad, while still being pulling customers to its platform via referrals. Acquisitions have also played their part, with the company earning £20mn of revenue from businesses acquired since the end of 2021.

Mattioli offers an interesting combination of inherent operational gearing and resilient revenue streams through its advisory businesses. The shares have eased back slightly since the summer but the forward price/earnings ratio of 13, based on FactSet consensus, is unchanged.

HOLD: Barratt Developments (BDEV)

The housebuilder performed well in the second half of last year, but difficulties lie ahead, writes Mitchell Labiak.

Barratt Developments ended last year with a bang. In its results for the six months to December 31, revenues and profits jumped despite another bang rumbling in the distance — the pullback in house prices. They are in their longest period of decline since 2008 with some experts predicting they will have fallen 10 per cent by the end of 2023.

This is already hurting Barratt. Forward sales slumped by 31 per cent by volume and 35 per cent by value when compared with the same point last year (end-January), underlining that the company’s next set of results will not be as rosy. The phased reduction of its dividend coverage from 2.25 last financial year to 1.75 by 2024, as well as its reduced dividend payment for this half-year period, is a recognition from Barratt of the rocky road ahead. Bad news for income investors who should expect less going forward.

Then there is the ongoing issue of fire safety costs post-Grenfell. The company took a big hit last year, but there were no such payments for this reporting period and Barratt insists there will be no more costs to pay “should it sign the proposed contract” which the government unveiled at the end of last month. Developers have been given a deadline of March to sign or face “significant consequences”, yet the wording from Barratt is far from a pledge that it will sign the contract, setting the stage for a potential stand-off with the government on the issue.

The company prompted some cause for optimism, however, when it said that it had seen “early signs of improvement” in January trading. Its net private reservation rate (per active outlet per week) rose to 0.49 last month, up from 0.3 in the final six weeks of 2022.

That uptick helped sparked a mini-rally in housebuilder shares, but Barratt’s results need to be understood in the context of the challenges ahead.

HOLD: PZ Cussons (PZC)

Management pointed to “limited volume declines” as net debt increased, writes Christopher Akers.

PZ Cussons’ shares were marked down by 6 per cent on the back of a mixed set of results. The consumer goods company, which owns Carex and Imperial Leather, kept its full-year guidance and dividend steady, but this wasn’t enough to prevent market jitters around demand pressures and higher net debt.

It was in Africa where the greatest top-line joy was found, despite that market driving the 5 per cent decline in overall volumes in the period (which wasn’t a terrible result given the consumer spending environment). Like-for-like (LFL) revenues were up there by 16 per cent, with distribution gains and price increases behind the performance. An adjusted operating margin uplift of 370 basis points outstripped performance in other locales.

Results elsewhere were less impressive. LFL revenues rose by 8 per cent in Asia Pacific and contracted by 6 per cent in Europe and the Americas. The latter market — where profits plunged — was hit by the continuing normalisation of handwash demand. Given that Carex sales are still up by a fifth against the pre-Covid baseline, there is a question here of just how much further they have to fall as the hyper-conscious pandemic attitude towards germs fades.

Management expects an improved margin performance in the second half of the year. And long-term revenue and margin targets were maintained. Promising stuff. But a chunky increase in adjusted net debt from £10mn to £36mn in the half raised some eyebrows.

City analysts value the shares at their five-year average of 17 times forward earnings, according to the consensus position on FactSet. This is undemanding, if not exactly cheap. We think the long-term outlook still looks promising for the company, as it invests more in key brands and adapts to a changing market.

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