Specialist IFA Frenkel Topping has abandoned its strategy of acquiring traditional advice businesses to fuel future growth as assets inch closer to the £1bn mark.
In interim results published Tuesday the Aim-listed firm said AUM had surged to £962m by the end of June, up 13% on a year ago, recovering from the Covid sell-off which took total assets down to £849m at the end of March.
Its discretionary business Ascencia grew assets by 26% to £434m over the interim, from £345m at the end of June 2019. Net inflows of £75m were up 70% on the previous year and exceeded the firm’s target of bringing in £46m worth of new business.
It also reported double-digit profit growth of 16% to £1.1m and saw revenues hit £4.4m.
Frenkel Topping switches up acquisition strategy
But speaking to Portfolio Adviser about future growth prospects, chief executive Richard Fraser said the firm had made a conscious decision to move away from buying traditional IFAs to firms providing personal injury and clinical negligence advice.
Frenkel Topping had been looking to boost AUM by acquiring more IFA businesses but after a two-year search in which it “carefully assessed a number of targets” the board deemed none of them to be suitable.
As bigger consolidators entered the space, also hungry to buy, Fraser said the multiples being paid for IFA businesses shot up from 4-5x earnings to as high as 9x Ebitda. On top of that, private indemnity insurance and defined benefit pension rule changes have made IFA businesses riskier assets to own.
“We just looked at the whole thing and thought it was too expensive, the risks were too great for us,” he told Portfolio Adviser.
Instead, the specialist IFA firm will focus on consolidating the pre-settlement professional services market for personal injury and clinical negligence which Fraser said is a less risky method of increasing AUM and will yield higher levels of organic growth than a traditional IFA firm.
Schroders and Premier Miton back Frenkel Topping placing
Frenkel Topping’s pivot in strategy has already proved enticing to investors. In July the specialist IFA raised £13m through a placing of 32.5 million shares at 0.5p each to fund future acquisitions in the personal injury and clinical negligence marketplace.
Harwood Capital was a cornerstone of the placing with founder Christopher Mills snapping up nine million shares in the business via his North Atlantic Smaller Companies Trust. Existing shareholder Killik & Co also participated taking its stake in Frenkel Topping to 4.3%.
But the fundraise also attracted new investors like Schroders, Premier Miton small cap star Gervais Williams and Gresham House.
Fraser thinks the decision to position the firm as a professional services consolidator was an easier sell for investors.
“I think a lot of them have seen the IFA roll-up was a thing of the past or it’s becoming more expensive and the risks that go with it so they all bought into this professional services roll-up that feeds into the IFA business that feeds into distribution for Ascencia,” Fraser said.
Mills’ £576.8m North Atlantic Smaller Companies trust is currently Frenkel Topping’s largest institutional shareholder with a 22.3% stake in the business, followed by IPGL, the private investment company of Tory billionaire Michael Spencer, which owns 15%.
Gresham House now owns 5.8% of the business, while Premier Miton and small cap house Marlborough Fund Managers own 5.4% and 5.1% respectively. Liontrust Investment Partners, a subsidiary of the main fund group, also has a 3.8% stake.
Frenkel Topping has already made one acquisition since the interim period, acquiring Manchester forensic accountant Forths Associates which it announced alongside the placing.
“Effectively we’ve actually gone back to our roots,” Fraser said, referring to Frenkel Topping’s origins as a forensic accounting business in Manchester in 1979.
ESG portfolios drive growth at discretionary arm
Elsewhere he said the firm’s DFM business Ascencia was continuing to attract new business particularly via its ESG strategy.
The bulk of Ascencia’s £70m net inflows went into its risk-rated ESG portfolios, which attracted £40m from investors over the period.
Ascencia’s four strategies, which span ESG, Shariah Compliant Solution, Low to Medium MPS and Safety First, have benefited from being defensively positioned with high levels of cash going into the lockdown period, Fraser said.
The ESG Solution 4 fund is up 1.8% year-to-date compared to the FTSE All Share’s losses of 17.5%. It currently has a cash weighting of around 27%.
Meanwhile its its Safety First Fund, which has fallen 2.9% so far this year, has around 40% in cash in the risk profile 2 version of the portfolio.
