Shore Capital equity research analyst, Ben Williams, said: “It [Transact] was priced to absolute perfection. Businesses like that were massively ‘in vogue’. And funds investing in companies like that - i.e. steady, stable growth - were also the funds getting all the inflows,” he explained.
“At one point, IntegraFin’s stock was trading at 40 times core earnings...But market declines and rates going up are enough to take a quarter off a share price alone for businesses which are equity, and not debt, funded.”
Williams said Transact's share price decline was categorically not a result of a change in long-term organic growth predictions. “You can’t say there’s been a substantial slow down in net flows, as the quarters are comparing,” he said.
David Ferguson, founder of Nucleus and now chief executive of Seccl, also highlighted the risks rising rates pose to platforms last month. He said higher interest rates, as well as a pressure for lower fees, will place a squeeze on private equity-backed platforms in particular.
Responding to a request for comment, Transact’s boss Jonathan Gunby told FTAdviser that while its parent company IntegraFin has seen a fall in its share price, this has “no impact" upon Transact's strategy.
“We remain UK only - adviser only," said Gunby. "Indeed, one of the factors affecting the share price is that we announced an increase in future expenses over the next 18 months due to further recruitment.
"This recruitment enables us to continually improve the platform and service we provide."
Dip in service levels ‘real red flag’
Industry consensus reckons advisers have nothing to worry about until platforms’ service levels begin to dip.
Consulting director at the Lang Cat, Mike Barrett, said: “The real red flag in our world would be a deterioration in adviser sentiment.”
Taking the Transact example, according to the Lang Cat the platform has consistently ranked one of the top businesses in terms of service ratings and gross flows.
“Share price and adviser sentiment are separate,” he said. “While a share price might seem alarming, it’s whether we see a service dip.”
A number of platforms, including Transact, struggled during Covid-19 due to the shift in home working which put pressure on service levels for a time.
“That challenge wasn’t Transact specific,” said Barrett. Despite the temporary struggle, sentiment among advisers does not seem to have been dented in the long-term.
