Arrow Global misses the mark as profits slip

Arrow Global Group PLC’s (LON:ARW) results appeared to miss the mark for investors on Thursday as a decline in profits for 2019 sent the shares sliding.

For the year ended 31 December, the asset manager reported that underlying pre-tax profits had fallen 5.2% to £78.1mln despite a 7.5% increase in core cash collection to £442.3mln and a 2.9% increase in third party asset management and servicing (AMS) income to £94.4mln.

However, the company did try and sweeten investor sentiment with a 3.1% increase in the full year dividend to 13.1p per share.

Looking ahead, group chief executive Lee Rochford said the company was “well positioned to react robustly to the fast-moving macro-economic environment in 2020” and was continuing to target total funds under management (FUM) of €2bn (£1.77bn).

“When I look further ahead over the next three years, I remain confident in our ability to continue to grow our FUM, deploy these funds at attractive [internal rates of return] and charge predictable Fund Management and AMS fees for our services. Successfully executing this will mean that the Group’s transition to a more capital light business model will continue to accelerate, supporting the key elements of our five-year targets – to double AMS revenues, reduce leverage, increase cost efficiencies and grow returns to shareholders”, Rochford added.

In a note on Thursday, analysts at Peel Hunt retained their ‘sell’ rating and 200p target price, saying the results had shown “strong collections performance offset by weaker portfolio revaluation gains”.

They added that “any distress in banking markets should provide additional growth opportunities for Arrow”, however in the shorter-term there were risks that could arise from an economic downturn.

“Until there is greater clarity over how collections will hold up against a slowing macro backdrop in key markets we view the shares as higher-risk in view of the nature of Arrow’s assets”, the broker said.

Arrow’s shares fell 10.8% to 160.5p in mid-morning trading.