Miton: Is 30% share price upside realistic?

Following good fund performance and surging profits last year, Lee Wild looks at prospects for 2019.

Miton (LSE:MGR) had a great 2018. Net inflows more than doubled to £1 billion, its funds performed well and the share price had risen over 100% just prior to the fourth-quarter market sell-off. In fact, the firm did so well it easily beat City forecasts, causing a 13% surge in the share price Monday.

Assets under management (AuM) grew by 14% to £4.38 billion and most funds run by Miton's star managers remained in the first or second quartile performance rankings. Indeed, the LF Miton UK Multi Cap Income Fund grew by 25% last year. 

As a result, a 34% increase in adjusted pre-tax profit to £9.2 million exceeded its house broker's estimate by 9%. A strong balance sheet boasting £25.5 million of net cash also bankrolled an increase in the dividend to 2p, better than the 1.6p expected by analysts.

Source: TradingView (*) Past performance is not a guide to future performance

Miton's numbers are all the more impressive given the broad market decline at the end of 2018. However, after four quarters of new inflows last year, clearly December was more subdued, and that's continued into 2019.

Still, while figures from the Investment Association (IA) trade body show £859 million of outflows from UK funds in January, Miton reports that net flows for the year to date have been neutral, and more positive market performance had nudged AuM up to £4.56 billion by the end of February.

Miton chief executive David Barron is optimistic. "We're not in a bad position at this time of the year," he told me today. "We're not seeing a significant uptick in redemptions, just a slowdown in investments into equity funds. However, there is anecdotal evidence that people are still contributing to investment schemes like SIPPs, but not putting that money to work in equity-based funds. 

"That could change quite quickly," said Barron.

"There is cash in these schemes that could move into equities at the right time, although when is difficult to call."

He adds that, while Brexit has changed the perception of UK assets among investors, you could "make quite a good case that UK assets are cheap versus international assets."

Down around 30% from last October's peak at 76p to last Friday's 52p closing price, highly-regarded independent financial sector analyst Jeremy Grime expects Miton shares to "retrace the decline".

And there's good reason for that. Using house broker Liberum's earnings per share forecasts for 2019 of 4.3p, Miton shares trade on a forward price/earnings (PE) ratio of 13.4. Strip out cash and that drops to around 11.5 times earnings, even after today's rally. It thinks the shares are worth 69p.

*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.

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