Ccord hums sumsAston Hill Financial (AHF : TSX : C$1.29) - Buy - Target:C$1.75
Attractive entry point; maintaining BUY rating and C$1.75 target
Investment recommendation We maintain our BUY rating and target price of C$1.75/share. In Q3/13, we saw the CC&L transaction (half quarter contribution) increase Base EBITDA to $2.8 million (+24% QoQ). For Q4/13, with the full inclusion of CC&L, we are forecasting Base EBITDA of $3.5 million (+27% QoQ). In Oct/13, AHF announced a dividend increase of 20%, which we believe is supported by CC&L. The new dividend implies an attractive yield of 4.7%, above the peer average of 3.9%. AHF stock has significantly trailed peers. On a YTD and QTD basis, AHF stock has returned 4%, and 0% vs. their peer average of 8% and 27%. In our view, AHF stock seems very attractive trading at 7.7x 2014 EBITDA, a 29% discount to the asset manager peer average of 11.2x. Investment highlights First quarter inclusion (half quarter) of CC&L acquisition. Base EBITDA came in at $2.8 million (up 24% QoQ and 39% YoY), compared to our $2.7 million forecast. Higher than expected revenue of $9.2 million (up 19% QoQ)
offset higher than expected G&A costs. AUM up 17% QoQ. Aston Hill's AUM increased by 17% QoQ to $7.9 billion (up 31% YoY) due to the CC&L closed-end fund addition ($1.18 billion in AUM). As well, proprietary mutual fund net subscriptions remained strong totaling $76 million (and $258 million YTD). Going forward, our forecasts reflect increased penetration on this side and we view this segment as the greatest opportunity for the company. Valuation Our 12-month target price is based on a sum-of-the-parts approach, derived by a: (1) 9.0x multiple applied to our 2014E Base Management Fee EBITDA estimate; and (2) 1.0x multiple applied to its 2.70% interest in Journey Energy Inc.