Wealth manager Mattioli Woods LON:MTW came out with some underwhelming financial numbers which seem to justify a share price which has been slipping over the last six months. The company is active across a number of UK pension, private equity and property management segments but has been marked down on a number of fundamental factors, including a decrease in operational profitability and free cash flow.
It described its trading performance over the first six months of the financial year as “resilient” when weighed against what was admittedly a challenging economic and geopolitical backdrop. The highlight was the growth in revenue, up 10% against the equivalent period. CEO Ian Mattioli pointed to organic revenue growth of over 2%.
Mattioli Woods seems to be on the acquisition trail – on 20 April it announced that it was buying Doherty Pension & Investment Consultancy, one of the largest financial planning and wealth management businesses in Northern Ireland. This was for a total consideration of £15m. In addition, it has also bought 50.1% of White Mortgages from owner Steven White for £0.425m.
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Michael Wright, Group Managing Director of Mattioli Woods, drew a direct line from the currently difficulties in the UK mortgage brokerage market to last autumn’s min-budget, which has driven a leap in mortgage interest rates, the withdrawal of many mortgage products and a rapid tightening in lenders’ underwriting criteria.
Drop in overall client assets
The drop in overall client assets which Mattioli Woods reported in February is testament to the tough conditions wealth management groups with a UK focus are currently facing. The company’s strategy seems to be to diversify by acquiring smaller outfits at a time when the latter are struggling. These acquisitions do seem to be turn themselves into revenue – some £20m came into the company in 2022 from acquisitions it made in 2021. Biggest among those were Maven and Ludlow.
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The whole UK wealth management market has been in consolidation mode for some years now, with smaller firms selling out to larger players. While not one of the giants, Mattioli Woods obviously has ambitions in that direction.
The stock is a dividend payer and has exposure to the recurring fees that can be earned in areas like pensions. Indeed Mattioli Woods reported that recurring revenues comprised nearly 90% of its total sales.
If we had a big issue here it would be with the balance sheet, as this does not stack up well against some other listed options in the same sector. But it could be argued these are much bigger businesses with market caps far larger than Mattioli Woods. Still, cash flow is also relatively low at Mattioli Woods, even when assessed proportionally-speaking against the likes of Hargreaves Lansdown [LON:HL] or SJP LON:STJ.
We remain sceptical about the short term gains to be made in the wealth management sector as a whole. Shares in Mattioli Woods are down 15% on the 12 month picture, with a PE ratio of 58x to boot. Shares in Hargreaves Lansdown are down 4.65% over 12 months. On the other hand, AJ Bell LON:AJB stock has been doing well, up 18.69% over the same time period.
However, over the shorter term picture most of these companies have seen their stock struggle, largely on the back of events last autumn and the gradual squeeze of higher interest rates and inflation on the UK economy.
