INVESTMENT support business Nucleus Financial has said it expects to maintain growth this year although uncertainty about Brexit is impacting on stock markets.
Edinburgh-based Nucleus, which develops technology platforms that advisers can use to manage clients’ investments, grew underlying profits by one third, to £7.7 million last year, from £5.8m, amid challenging conditions.
Chief executive David Ferguson noted volatility in international stock markets combined with uncertainty about Brexit impacted on sentiment. Nucleus stands to benefit from rising markets and from people increasing the amounts they invest as revenues are linked to the value of assets under administration on its platform.
“Despite a modest recovery in Q1 2019, the continued lack of clarity caused by Brexit and the ongoing impact on investor confidence is doing little to promote stability and these themes may continue throughout 2019,” said Mr Ferguson.
However, he said Nucleus was well-placed in a market that is expected to grow dramatically in coming years. Moves requiring people to take increasing responsibility for saving for retirement are encouraging demand for platform services.
“The advised platform market is now forecast to grow to £581bn by the end of 2023… and this structural trend is a key driver of our medium/long-term growth,” said Nucleus.
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The company noted that in spite of the volatility experienced last year the advised platform market grew three per cent to £364bn.
Directors reckon Nucleus put itself in a stronger position to capitalise on growth in the market by making changes that enhanced the company’s control over the platform technology it uses. This should allow it to speed up product development in response to market changes.
The company raised £32.1 million in exchange for 23% of its equity when it floated on the Alternative Investment Market in July last year giving it increased firepower to support growth.
Nucleus had £17.7m cash and no debt at the year-end putting it in a strong position to consider making acquisitions.
“Key to the business’s future will be continuing to grow users, or acquiring other platforms and fintechs to drive economies of scale,” said John Moore, senior investment manager at Brewin Dolphin Scotland. “In the short term at least, I suspect Nucleus will focus on the latter.”
Mr Ferguson said Nucleus was very much focused on an organic growth strategy but would remain open-minded about acquisition opportunities in the platform space or adjacent markets.
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He shrugged off suggestions that Nucleus could find its growth prospects constrained by competition from asset management giants that see the platform market as attractive. These include Edinburgh-based Standard Life Aberdeen and Aegon UK.
Mr Ferguson noted that in industries like music independent platform operators such as Spotify have become market leaders in competition with content providers.
Last year’s flotation offered liquidity to existing investors, including around 75 IFA businesses who managed client accounts via Nucleus’s wrap-platform technology and had backed the business from its launch in 2006.
Nucleus achieved a 6% increase in the number of active advisers using its services from to 1,396, from 1,317, over the last year. This was accompanied by a 7% increase in customer numbers, to 93,715, from 87,556.
Assets under administration rose 2.3% annually to 13.9m. Revenues increased 8.7% to £49.4m.
The number of full-time equivalent employees increased to 218 from 192 during the year. Nucleus said it expects to grow staff levels this year but at a lower rate.
Shares in the firm closed up 4p at 176p.
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