International pensions provider STM (AIM: ATM) saw its shares take a 30 per cent dive in March. In a shock Budget announcement, transfers by expats from outside the European Economic Area into Qualifying Recognised Overseas Pension Schemes (QROPS) were hit with a tax. The QROP is a core product for STM and with 80 per cent of its plans being sourced from non-EEA countries, the stock market feared the worst.
Happily today’s interims helped allay those fears as the shares moved back above their pre-Budget level. The quality of the company’s recurring revenue stream and the benefit of the L&C life assurance acquisition have come through and encouraged broker finnCap to upgrade this year by 18 per cent. STM acts as a plan administrator and 93 per cent of its pension division revenues in the first half consisted of recurring fees.
New business is down, but there’s scope to replace the ‘lost’ QROPS with international SIPP sales. The acquisition of L&C brought a small SIPP administrator with it and STM has been able to quickly launch an international version for its overseas IFA networks. The SIPP has the benefit of being a mainstream UK regulated product, which should make expats comfortable with it as a solution, but it is a little less tax efficient. STM’s advantage is its experience in carrying out client checks on expats, whereas domestic SIPP providers tend not to onboard foreign residents. Monthly sales are running at the one hundred mark, around half the old QROP rate, but they have a decent chance of picking up pace. It is still an attractive solution for expat pensions.
Elsewhere there should be scope to consolidate the administration of QROPS by acquiring smaller books of business. These might well become available at good prices given the reduced growth prospects from this line. The L&C life acquisition has delivered a £0.5 million release of expense reserves following its integration and there’s the prospect of further releases in future. Revenue growth in life was also better than expected.
With the shares up 11 per cent at 60p they trade on a p/e of 11.3 and yield 3 per cent.