Shares in British asset manager Impax Asset Management (IPX:LON) have tanked recently, falling more than 80% from their highs. As a result, they now sport a low valuation and a high dividend yield.
Is there an opportunity here for savvy investors? Let’s take a look.
What does Impax Asset Management do?
Impax Asset Management is a specialist asset manager that is focused on sustainable investing strategies. A relatively small player in the investment world, it currently has assets under management (AUM) of around £40 billion.
Impax was founded in 1998, and listed on the UK’s Alternative Investment Market (AIM) in 2001. At today’s share price of 238p, it has a market cap of £311 million, meaning that it’s a small-cap stock.
What’s going on with the Impax share price?
During the coronavirus pandemic (2020/2021), Impax’s share price shot up spectacularly (to around 1,500p). At the time, there was a lot of interest in sustainable/ESG investing and investors saw this AIM stock as a great way to play the theme.
However, since early 2022, the stock has been in a downtrend as interest in sustainable investing has cooled and company growth has stagnated. And recently, the downtrend has accelerated.
Earlier this month, the shares fell more than 20% after the company announced that wealth manager St. James’s Place (STJ) had terminated its Sustainable & Responsible Equity Fund mandate. The AUM of this fund was around £5.2 billion and Impax has said that the termination will result in a £12.7 million annual hit to its revenue.
The bull case
Now, at first glance, Impax shares look cheap after the recent fall. Currently, the consensus earnings per share (EPS) forecast for the year ending 30 September 2025 is 29.3p. So, at today’s share price of 238p, we have a price-to-earnings (P/E) ratio of just eight. That EPS forecast should be taken with a grain of salt though. After the SJP mandate loss, I expect City analysts to revise their EPS forecasts downward in the weeks and months ahead. In other words, the stock probably isn’t as cheap as it looks.
That said, I do think Impax could be a takeover target after its recent share price weakness. There’s a lot of consolidation in the asset management industry right now and many companies are looking to get more exposure to sustainable investing strategies. With the company’s market cap now sitting at just over £300 million, I wouldn’t be surprised to see an offer come in from a larger player such as Schroders (SDR). If it was to receive an offer, its share price could bounce.
As for the dividend yield, it’s high at the moment. For the financial year ended 30 September 2024, the company declared total dividends of 27.6p per share. That equates to a yield of 11.6% at today’s share price. Bear in mind though that this level of payout may not be sustainable as dividend coverage (the ratio of earnings per share to dividends per share) is currently very low.
The bear case
In terms of the bear case, there are a few issues to be aware of here.
One is that the outlook for active asset managers like Impax is pretty dire today. These days, the bulk of investors’ capital is going into passive index funds run by the likes of iShares and Vanguard. And this is unlikely to change any time soon. So, AUM growth here could be hard to come by.
It’s worth noting that Impax’s recent full-year results, for the year ended 30 September 2024, were disappointing. For the period:
- Assets under management remained broadly flat at £37.2 billion (which is poor in a global bull market)
- Net flows were minus £5.8 billion
- Revenue decreased by 4.7% to £170.1 million
- Adjusted diluted earnings per share decreased by 8.5% to 32.2p
- The dividend was held flat at 27.6p per share
One other thing worth pointing out is that ESG stocks could struggle while Donald Trump is US president as he is not a fan of industries such as renewable energy. This backdrop could put further pressure on Impax.
My view on Impax Asset Management shares
This is a small-cap stock I used to be very bullish on. But I’m finding it a bit harder to be bullish today.
Yes, the stock looks cheap. And it could provide plenty of dividend income in the years ahead.
But active management is a tough industry to be right now given the shift to passive investing. And ESG investing has lost a bit of its shine.
Weighing everything up, I’m going to go with a neutral stance on this stock for now. I do see some appeal from a value perspective, but I also see a few risks that can’t be ignored.
Pros
- Low valuation
- Could be a takeover target
- High yield
Cons
- Operates in a struggling industry
- Just lost a major mandate
- Outlook for ESG assets is complex
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Outlook
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Based in London, Edward is a distinguished investment writer with an extensive client portfolio comprising a diverse array of prominent financial services firms across the globe. With over 15 years of hands-on experience in private wealth management and institutional asset management, both in the UK and Australia, he possesses a profound understanding of the finance industry.
Before establishing himself as a writer, Edward earned a Commerce degree from the prestigious University of Melbourne. Complementing his academic background, he holds the esteemed Investment Management Certificate (IMC) and is a proud holder of the Chartered Financial Analyst (CFA) qualification.
Widely recognized as a sought-after investment expert, Edward’s insightful perspectives and analyses have been featured on sites such as BlackRock, Credit Suisse, WisdomTree, Motley Fool, eToro, and CMC Markets, among others.
You can contact Ed at edward@goodmoneyguide.com
