As a result, there’s been considerable consolidation within the sector in recent years as firms have acted to strengthen their market positions and boost their margins, and this is a trend that looks set to continue. With that in mind, here’s a look at two highly profitable niche asset managers I think could be takeover targets.

Impax 

Impax Asset Management (LSE: IPX) focuses on sustainable investing which seeks to consider both financial return and social/environmental good. Founded a little over 20 years ago, the group offers a range of thematic and unconstrained global equity strategies as well as real asset funds focused on the growth opportunity arising from a sustainable economy.

It’s this niche focus I believe makes Impax a prime takeover target as public interest in issues such as climate change and environmental protection is increasing and the demand for sustainable investments is on the rise. Impax, which has won awards for its sustainable investing in the past, could be a great fit for a larger asset manager looking to boost its presence in this area, in my view.

Impax has grown significantly over the last decade and today’s half-year results show further progress. The group enjoyed inflows of £887m over the six months to 31 March, boosting assets under management by 6% to £13.3bn, while revenue and profit before tax jumped 32% and 69%, respectively.

Moreover, in a statement of confidence from management, the interim dividend was hiked 36%. Chief executive Ian Simm commented: “Impax’s specialist expertise as investors in the transition to a more sustainable economy is resonating with a range of asset owners around the world, and the company remains well placed for further growth.”

Impax shares have fallen on today’s results, but I would view any share price weakness as a buying opportunity. The shares are not particularly cheap (forward P/E of 25), but given the growth story, I think they deserve a premium.

Liontrust

Another asset management company I think could be a takeover target is Liontrust (LSE: LIO), which runs a range of specialist investment funds and also has a focus on sustainable investing. It had just under £13bn in assets under management at 31 March.

While many other asset management companies have been struggling recently, Liontrust has been thriving. For example, for the year to 31 March, the group enjoyed record net inflows of £1.8bn, which boosted its assets under management by 21%. This is a particularly strong performance given the UK asset management industry as a whole experienced negative retail fund flows in six out of the seven months to the end of February.

Liontrust shares currently trade on an attractive P/E of just 13.2 which I think could increase the group’s takeover appeal. There’s also a healthy yield of around 4% on offer right now. Overall, I see considerable investment appeal in this small-cap champion.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Liontrust Asset Management. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Indeed, the shares will tell you they currently support a dividend yield of 8.4%, although management is planning to reduce the payout in 2020 by around 20%. After taking this reduction into account, the shares are set to yield 6.9% for 2020. However, I don’t think this will be the last time the company will have to cut its dividend payout. 

Dividend cut 

Even after reducing its 2020 dividend, SSE’s payout will still only be covered 1.2 times by earnings per share which, in my opinion, isn’t enough to both maintain the distribution, reinvest in the business, and pay down debt. 

As I have covered before, SSE’s net debt has nearly doubled over the past six years as the company has struggled to maintain its dividend and reinvest in the business. As a result, management doesn’t have much financial flexibility, and a significant drop in earnings per share may force further dividend cuts.

With this being the case, I think there are better places to invest your money if you’re looking for income. Although SSE might not have to cut its payout again in the near term, I don’t think it’s worth taking the risk because another cut may cause the shares to lurch lower. That risk isn’t worth the 7% reward, in my opinion.

Explosive growth 

Instead of SSE, I think Impax Asset Management (LSE: IPX) could be a good fit for any portfolio. Unlike SSE, which is shackled by regulation and debt, Impax has a cash-rich balance sheet and is attracting hundreds of millions of dollars in client cash to its offering. 

Today, the company reported a 15% increase in assets under management for the quarter ending 31 March to $17.3bn.

Impax’s selling point is a focus on sustainable market themes. The company’s mission statement declares the firm is looking to produce “risk-adjusted investment returns from opportunities arising from the transition to a more sustainable economy.“

By focusing on this rapidly expanding section of the asset management industry, Impax’s profits and assets under management have exploded, even as so many other asset managers have been struggling to attract client funds. 

In 2013, the company printed earnings per share of 2.4p. Analysts expect this figure to hit 10.7p for 2019 and 13p for 2020. These estimates put the stock on a forward P/E of 22 and 18.1, respectively.

Dividend growth 

As well as this explosive earnings growth, Impax has also rewarded investors with substantial dividend increases since 2013. Analysts are expecting the company to distribute 4.4p per share this year, up from just 0.9p for 2013. If earnings continue to expand at the rate they’ve done over the past six years, I see no reason why this dividend growth cannot continue. 

So, while Impax might not look like the market’s most attractive income investment today (the dividend yield is a measly 2%), I think the stock has real potential to grow the dividend substantially from current levels.

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Today, I’m looking at two small-cap value stocks that I believe have the potential to deliver strong long-term returns for investors.

Liontrust Asset Management

Liontrust (LSE: LIO) is an independent asset manager based in London. The group runs a range of ‘specialist’ investment funds and has a particular focus on sustainable investing, which is a huge growth area. Earlier in the year, I actually listed the company as one of my top small-cap picks for 2018 when it was trading around 490p. Since then, it’s risen 30%, which is an excellent return given the market weakness we’ve seen in 2018. Yet looking at the group’s recent performance, I think there could be more upside to come.

Half-year results released this morning show that Liontrust has considerable momentum at present. For the six months to 30 September, net inflows were up 306% to £723m, which helped push adjusted profit before tax up 21% to £14.5m and enabled management to lift the interim dividend by 40% to 7p per share. Chief Executive John Ions was upbeat in his assessment of the group’s outlook, stating that he has “great confidence” about the future growth of the firm.

For the full year, City analysts currently expect Liontrust to generate earnings of 47.1p per share which at today’s share price equates to a forward P/E of just 13.6. I believe that’s a very reasonable price for a niche company with momentum, and a prospective dividend payout of 24.2p (a yield of around 3.8%) adds weight to the investment case. Given the attractive valuation and the growth story associated with sustainable investing, I see Liontrust as an ideal smaller company to buy and hold for the next decade.

Impax Asset Management

Another smaller asset manager in the sustainable investing space that I believe offers investment appeal right now is Impax (LSE: IPX). The group has a long history of investing in opportunities that have arisen from a transition to a more sustainable economy and has won awards for its sustainable investing in the past. Like Liontrust, the asset manager looks well placed to continue attracting capital as investors become more aware of the benefits of this investing style.

Impax is expected to report its full-year results for the year ended 30 September in the next few weeks, and if City analysts’ forecasts are on the money, the results should be good. Currently, analysts expect the group to generate earnings per share of 13.3p (up 115% on last year) and pay out 4.4p in dividends (up 52% on the last year). While there’s no guarantee that these forecasts will be accurate, it’s worth noting that Impax’s half-year results in June were excellent.

Impax shares are up over 25% this year but I believe there’s more to come from this firm over the long term. On a forecast P/E of 15.8, the shares remain good value, to my mind.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Liontrust Asset Management. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Sudden Impax

Impax was further boosted by reported total net client inflows of more than £1bn, predominantly from clients in continental Europe and North America. First-half revenues almost doubled from £13.9m to £25.7m, with profits before tax up from £2.4m to £5.5m. Adjusted earnings per share jumped from 1.94p to 4.83p, a rise of 248%. This allowed Impax management to hike its interim dividend 57% to 1.1p per share. It is also paying a special dividend of 2.6p due to the “outstanding performance” of its second private equity infrastructure fund.

The group hopes to benefit from the shift to a more sustainable global economy but must also deliver a robust investment performance, and has fared reasonably well. Its thematic environmental and resource efficiency strategies outperformed their sector benchmarks while slightly lagging the MSCI All Country World Index, and its global equity strategy outperformed.

Sustainable yield

Investors are happy and City analysts are forecasting 67% earnings per share (EPS) growth for the full year to 30 September, followed by 9% the year after. This fund management minnow, which has a market cap of £242m, also offers a forecast yield of 2.5%, with cover of 2.9.

My colleague Rupert Hargreaves reckons that if you buy today, you will be getting 4.8% by 2021. Its current forecast valuation of 16.5 times earnings does not seem excessive, especially if current momentum proves sustainable.

Pass the portal

Nine out 10 homebuyers start their search online but traditional estate agents have mixed feelings. They set up their own rival in January 2015, OnTheMarket.com (LSE: OTMP), to challenge the Rightmove and Zoopla “duopoly” and fight back against rising portal charges. The AIM-listed enterprise is now the third-largest portal in terms of traffic, and is giving itself a competitive edge by offering “new and exclusive” property listings.

Market mover

The group described this as a “transformative year” and this is an early stage business that is still trying to find its footing. Group revenue fell from £17.8m to £16m, with an operating loss of £10.8m (up from £1.2m in 2017), which includes £14.7m of exceptional items. Shareholders took a £12.1m hit after tax.

Cash reserves did increase over the year to £3.2m but establishing itself is proving costly. The £98m company’s stock is down 1.23% on these results and I would urge caution. Rightmove is still the undisputed number one in this sector.

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Both manage money for clients (as their names suggest) and they are both reasonably good at it judging by their performance figures.

Outperforming the market 

Today, Premier reported it received £175m of client assets for the three months to the end of 31 March, taking total net inflows for the six months to £411m. For the rolling 12-month period to the end of March, inflows totalled £847m. 

It seems investors are attracted to the firm’s funds thanks to management’s ability to pick stocks. Indeed, over the five years to the end of March, 97% of assets managed by Premier (excluding absolute return funds, investment trusts and segregated mandates) outperformed the median return of similar funds in the same sector. 

Following this robust performance it looks as if Premier is well on the way to hitting City forecasts for 2018. Analysts have pencilled in earnings per share growth of 70% for 2018, and a further increase of 21% is expected for 2019, leaving the group trading at a forward P/E of 12.3. 

But it’s the City’s dividend expectations for the company that really get me excited. Analysts are expecting Premier to distribute a total of 10.4p per share to investors this year, up 31% year-on-year and giving a dividend yield of 4.4%. The payout is expected to grow by a further 21% for 2019. 

So, if you are looking for a cheap, fast-growing company, with dividend aristocrat qualities, you shouldn’t overlook Premier (there’s also £18m of net cash on the balance sheet to support the payout.) 

Future dividend star

Impax Asset Management also published an upbeat update on its asset flows this morning. According to CEO Ian Simm, “In the first half of this financial year we have received over £1bn of new money, and our new business pipeline remains encouraging.” These new funds include the addition of the Pax World Management acquisition, which closed in January. On January 1, total firm assets under management amounted to £8.2bn. 

And just like Premier, analysts believe that if Impax can keep up its rate of client acquisition, then earnings are set to surge over the next two years as it benefits from economies of scale. 

Specifically, analysts are expecting earnings to jump 60% in 2018, supporting an increase in the full-year dividend payout of 24%. If the company does hit this target it will have increased its dividend by 380% since 2012 and earnings per share will have grown by a similar amount since 2013. 

Analysts are also forecasting dividend growth of 25% for 2019 which, if it materialises, will mean that the distribution has grown by 31% per annum since 2012. 

With this being the case, while the current dividend yield of 2.2% might not seem like much, if you bought shares in Impax today, according to my figures, by 2021 the yield on cost will be 4.8%.

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However, it looks as if the firm is finally starting to turn things around. Even though City analysts are forecasting no growth for the group this year, according to a trading update issued by the firm today, earnings are currently “ahead of the prior year,” which indicates that the City’s forecasts are now out of date. 

Pushing ahead

2017 has been somewhat of a turnaround year for NWF. The bulk of the company’s profits are linked to the UK dairy industry, which has been struggling in recent years thanks to low-cost overseas imports. A stronger milk market is helping the group make a comeback. Today management noted that “benefits of previous capital investment being delivered, alongside a recovering dairy market due to higher milk prices” is helping its feeds division that supplies close to 5,000 dairy farms. 

A dairy industry recovery should help NWF return to growth in the years ahead. For the past few years, management has been preparing for this turnaround, investing in the businesses asset base to expand its offering. Over the next few years, this investment should pay off.

Indeed, one group of City analysts believes that NWF’s normalised earnings per share could rise by 61% by 2019 as the combination of an improving market and better customer offering starts to boost the firm. Based on these figures, shares in the company are currently trading at a forward P/E of 10.9, which seems to me to be too cheap compared to the growth on offer here. The shares also support a dividend yield of 3.9%. 

Services in demand 

Another stock that I believe can help you make a million is equity investment manager Impax Asset Management (LSE: IPX). 

Over the past five years, as the demand for private equity products has surged, Impax’s earnings per share have more than doubled and analysts are projecting further growth next year.

For the fiscal year ending 30 September 2018, Impax’s earnings per share are expected to expand by 25% to 8.1p and the dividend is set to rise 20% to 3.5p. Based on these forecasts, the shares are trading with a yield of 2.2% and forward P/E of 19.4. 

So why do I believe that Impax is still a good buy? Well, the company has really proven itself over the past few years. Asset managers only succeed if they can attract investors, and the firm has proven itself to be highly adept at this. Assets under management increased by 61% to a peak of £7.3bn for fiscal 2017, rising to £7.6bn one month after year-end. To help complement growth, management recently negotiated the acquisition of Pax World Management, which is set to complete in the first quarter of 2018. 

If Impax can continue to impress investors, then I believe that there’s no reason why the group cannot continue to grow earnings at a double-digit percentage.

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Whatever the contributing factors, Impax Asset Management Group (LSE: IPX) has been enjoying a storming few years, with earnings per share (EPS) more than doubling between September 2013 and 2017. That enabled the firm to more than treble its dividend over the same period.

The year just ended has seen assets under management ballooning by 61% to a record £7.3bn. Since the 30 September year end, the figure has grown further to £7.6bn.

Net inflows of £2.1bn over the year contributed to that, leading chairman Keith Falconer to describe it as the firm’s “strongest growth since its inception in 1998.“

Best year yet

Revenue soared by 55% to £32.7m, with pre-tax profit up 13% to £5.9m, and shareholders’ equity up 33% to £35.6m.

Forecasts for 2018 suggest EPS growth of 18%, which would put the 159p shares on a P/E of a little over 20, which I don’t think is too stretched for a company with growth prospects — plus a strongly progressive dividend policy.

The dividend is expected to grow in line with EPS at 18%, to provide 3.45p per share by next September. That would be more than twice covered by earnings, which I think is conservative for a company of this nature.

Although the yield is currently low at around the 2% level, a strongly progressive yield like this can provide more long-term cash than a higher but flat yield today — and that’s something I like a lot when seeking out income shares.

A steady high yield

Mixing today’s high yielders with tomorrow’s potential cash providers can produce a risk-balanced portfolio, especially if spread across sectors.

To that end, I rate Imperial Brands (LSE: IMB) as a nice complement to Impax. It’s in a wildly different business, and it’s already paying big dividends today.

In fact, the tobacco giant has been offering yields of around 4-5% in the past few years, with a 6% yield penciled in for the year to September 2018. A share price fall over the past year or so, to today’s 3,056p, has helped boost prospective yields.

Cover by earnings has been steady at around 1.5 times, or better, which I see as providing more than adequate safety.

Low valuation

The share price drop was worsened today as Palmer & Harvey, a big distributor of tobacco products in the UK, has gone bust. And that is expected to knock up to £160m off Imperial’s operating profit this year, mostly due to non-recoverable excise duty. But it’s a relatively small hit over the long term, and it doesn’t damage my attraction to the stock.

As the shares have fallen, we’re now looking at a forward P/E of only a little over 11, and I see that as temptingly cheap.

And though smoking is becoming increasingly unpopular in most developed countries, the ongoing growth in volumes for the firm’s Growth Brands (up 5.5% in the year to September) is still bringing in the cash.

My only personal objection to Imperial Brands is ethical, but otherwise it would be firmly on my buy list.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

These acquisitions, and the benefits of having multiple related operations under one roof, helped ZPG grow revenues by 22% to £117.9m year-on-year for the six months to 31 March. Adjusted earnings before interest, tax, depreciation and amortisation expanded 11% year-on-year.  

Growing through acquisitions 

ZPG has continued to acquire new businesses to boost growth since the end of its first half. At the beginning of this month, the company announced that it had acquired Ravensworth, the leading provider of on-demand print & creative marketing services to UK estate agents. And today, ZPG revealed that it has agreed to buy Money.co.uk, one of the UK’s leading financial services comparison websites. The company is paying £80m for this asset, excluding a £60m performance-based earn-out. For the year ended 31 October 2016, Money reported revenues of £24.7m and adjusted EBITDA of £8m. 

This acquisition will almost certainly lead to an upward revision in City earnings forecasts for ZPG. At present, analysts have pencilled in earnings per share growth of 13% for the fiscal year ending 30 September, followed by growth of 18% for the following year. 

Unfortunately, the market has already recognised ZPG’s potential as the shares trade at a premium multiple of 25.3 times forward earnings. However, it’s the firm’s dividend potential that excites me. 

ZPG converts around 90% of earnings to cash, which gives the company plenty of firepower for acquisitions and returns to investors. Even though the shares only yield 1.6% today, the cash payout was covered 3.7 times by cash generated from operations for fiscal 2016, indicating that the company could double or even triple the payout if management decides to dial back acquisition activity. 

In demand

Like ZPG, Impax Asset Management (LSE: IPX) also flies under the radar of investors, despite its strong growth. Indeed, over the past five years, the company has grown pre-tax profit at a compound annual rate of 31.4%. Over the same period, the company’s dividend payout to investors has expanded 24.6%. 

Impax is an investment company offering listed and private equity strategies primarily to institutional clients. The firm provides investments in alternative assets such as food, renewable energy and logistics. This is a hugely lucrative business and one that’s growing by the day as institutional investors search for better returns on their cash. 

City analysts have pencilled in earnings per share growth of 31% for the fiscal year ending 30 September 2017 and growth of 42% for the following fiscal year. Based on these estimates the shares are trading at a forward P/E of 22.4, falling to 15.8 for next year. 

As well as rapid earnings growth, the company is set to hike its dividend payout to investors by 64% over the next two years. At present, the shares support a dividend yield of 2%, but this is expected to hit 3.2% by 2018. What’s more, the dividend will be covered twice by earnings per share, giving headroom for payout growth.

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