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Tiziano Frateschi
Tiziano Frateschi
Articles (2561)  | Author's Website |

Westwood Holdings: Growing Yield and Strong Fundamentals

The company pays a yield of 3.52% and is undervalued

October 06, 2015 | About:

Westwood Holdings Group Inc. (WHG) is a company with nice fundamentals and a strong, growing yield. The company manages investment assets and provides services for its clients through its subsidiaries. The company operates two segments: Advisory and Trust. These segments are managed separately based on the types of products and services offered and their related client bases.

The yield

The company is paying its shareholders a yield of 3.52% a year, with a payout ratio of 55%. The yield has been as high as 4.29% and as low as 0.14% since 2002. 

WHG dividend growth rate

1-year

12.80%

3-year

8.60%

5-year

7.90%

10-year

20.90%

Recent events

Recently the firm hired Jonathan S. Dale as the national accounts director for Financial Institutions. They believe Dale will help them to leverage strong brand strategies and they will continue to broaden the reach in the financial advisor and intermediary space.

Last quarter results

The company reported revenue increased by 21% during the second quarter compared to the same period last year.

Non-GAAP economic earnings were 23% above the second quarter of 2014. The company could launch three new mutual funds during the quarter for a total of 15.

Profitability, growth rates and returns

The company has strong profitability. ROE of 26.09% and ROA of 21.25% are outperforming 91% of its competitors. Margins are slightly below the average performance of the industry but are positive. Operating margin is 35.3% and net margin is 23.11%. Over the past five years, net margin has grown at a rate of 20.16%.

Revenue has grown by 15.60% over the past five years, while EBITDA grew by 18.50% and free cash flow grew 9.50%.

Share price & EPS

The stock is trading at $56 with not much change over the past year. It has risen by 60% during the last five years, by 208% during the last 10 years and is now 17.21% below its 52-week high and 16.73% above its 52-week low. 

The price of the stock is following a very steady upward trend. 

WHG stock price

Year

Highest

Lowest

Average

Growth

2009

$ 41.89

$ 24.90

$ 33.40

 

2010

$ 40.62

$ 28.98

$ 34.80

4.21%

2011

$ 40.20

$ 31.11

$ 35.66

2.46%

2012

$ 40.92

$ 34.15

$ 37.54

5.27%

2013

$ 61.91

$ 39.97

$ 50.94

35.71%

2014

$ 67.84

$ 51.72

$ 59.78

17.35%

5-year growth rate*

 

72%

5-year CAGR*

 

11.43%

5-year average growth rate*

13%

   

(* From the average value)

 

EPS grew by 118.35% during the last five years with a CAGR of 16.90%.

Year

EPS

Growth

 

2009

1.09

   

2010

1.58

44.95%

 

2011

2.04

29.11%

 

2012

1.65

-19.12%

 

2013

2.32

40.61%

 

2014

3.45

48.71%

 

5-year growth rate

118.35%

5-year CAGR

16.90%

5-year average growth rate

28.85%

         

From the tables above, we can easily see how earnings are growing faster than the price, giving the stock a great margin for future growth.

Taking a look at the P/E (ttm) of the last five years, it has had an average ratio of 22.

 

2014

2013

2012

2011

2010

2009

Price at P/E of 22

$76.00

$51.11

$36.35

$44.94

$34.81

$24.01

Real average price

$59.78

$50.94

$37.54

$35.66

$34.80

 
 

-21%

0%

3%

-21%

0%

 

Given the current price of $57.27, the stock needs to rise by 25% to be 22 times the FY 2014 EPS of $76. The same result is confirmed by the GuruFocus DCF calculator, which gives a fair value of $75.40 and a current margin of safety of 25%.

Hedge funds

Westwood Holding Group is held by three gurus. Chuck Royce (Trades, Portfolio) holds 9.18% of outstanding shares of the company, Mario Gabelli (Trades, Portfolio) holds 7.35% and Jim Simons (Trades, Portfolio) holds 1.91% of outstanding shares. 

About the author:

Tiziano Frateschi
You can read about me on www.theextraincome.info, which gives suggestions on position trading.

Visit Tiziano Frateschi's Website


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