Edison Research: Strategic agreement to broaden product offering

Lighthouse (LGT) has announced a strategic agreement with Tavistock Investments (TAVI) that will provide it with access to Tavistock’s investment solutions. This will help deliver the broader offering Lighthouse seeks for its in-house asset management arm, Luceo. In conjunction with this agreement, Lighthouse has subscribed £1m to Tavistock’s £1.25m equity fund-raising giving it a 5.3% stake. Our valuation (c 44p) and estimates are unchanged at this stage.

Strategic agreement to broaden product offering

Lighthouse launched Luceo Asset Management in 2016 to offer in-house funds of funds tailored to a range of risk profiles. Octopus acts as investment adviser to the funds. In H118, the AUM of the five funds increased from £37m to £53m, with one fund reaching the break-even level of c £20m. Lighthouse has been considering broadening the fund range further and was introduced to Tavistock recently, leading to the strategic agreement which will be formalised in the coming months. This will give Lighthouse access to Tavistock investment solutions, including in particular two recently launched capital protection funds. These funds are mainly invested in BlackRock iShares, and the guarantee is provided by Morgan Stanley and scales with the value of the fund. Tavistock also has a risk-graded fund range, a model portfolio service and plans to launch an app next year allowing consumers to buy a guaranteed fund provided by a large investment bank. Lighthouse sees a good opportunity here to provide products that meet common customer requirements and help Luceo funds reach a profitable scale.

Subscription to Tavistock fund-raising

In conjunction with the agreement, Lighthouse has subscribed £1m to a £1.25m equity fund-raising by Tavistock (at a 10% discount to the previous day’s closing share price). The issue is designed to facilitate the replacement of an expensive loan with an interest cost of 9% due for repayment in April 2019. The £1m investment in Tavistock deploys part of the c £5m free cash Lighthouse has available and at the same time reduces the potential requirement for seed capital that would arise if Luceo launched new funds itself. Tavistock appears to be at an inflexion point in terms of profitability. At end September it had FUM of £941m (up 26% over a year) and total assets under advice of £3.5bn. Half-year gross revenue was £14m (+14%), EBITDA £0.5m (+227%) and there was a small operating loss. It is also in the process of implementing a £0.5m cost reduction programme and this, together with the increase in FUM, is supportive of the consensus expectation of a sustained move into net profit.

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