ESG (environmental, social, and governance) investing has not been front of mind for many investors since the end of the pandemic as rising interest rates, inflation and the cost-of-living crisis have taken centre stage.
Leading specialist asset manager Impax Asset Management (IPX:AIM), which is focused on investing in opportunities arising from the transition to a sustainable global economy and climate change, has born the brunt of investor neglect.
In late 2021, the shares were riding high and briefly touched £14.60 but the brutal fall from grace has seen them sink to as low as 121p at the end of April.
This de-rating of the stock means the PE (price to earnings) ratio for expected earnings to the end of September 2025 has dropped to 6.6 times compared with 32 times in 2021.
Adjusting for the circa £100 million of own net cash sitting on Impax’s balance sheet, the 2025 PE multiple falls to a miserly 4 times earnings per share.
Despite the recent (8 April) profit warning which revealed a 26% drop in AUM (assets under management) at the half year, principally from a £5.2 billion redemption from one of Impax’s biggest clients St James’s Place (STJ), we believe the investment risks are low while the chances of a bounce-back are high.
From a longer-term perspective, we believe such a low valuation is unsustainable and is likely to attract a predator or opportunistic buying from institutions.
After all, Impax has displayed all the characteristics of a high-quality business and earns highly-respectable returns on equity which have averaged 33% over the last five years.
TRACK RECORD
Impax has developed strong investment credentials in its areas of specialisation like water, agriculture, and renewable energy. While investment performance over the last three years has lagged the MSCI All World Index, over five years both the Leaders Fund and Global Opportunities Fund, which combined represent 45% of group AUM, have outperformed, demonstrating value-add for clients.
And against direct counterparts the company shows a credible outperformance, exemplified by the Water Fund which has bested peers over one, five and seven years.
Encouragingly, recent performance to the end of February showed a pick-up across the group’s funds with more than two thirds of group assets ahead of benchmarks in the first two months of 2025.
Existing clients and AUM are likely to be stickier than St James’s Place, which did not provide a reason for its redemption. For example, key fund distributer BNP Paribas (BNP:EPA) recently awarded Impax a fresh mandate and importantly holds a 13% equity stake in the company.
After overseeing a strategic review of the £750 million Impax Environmental Markets (IEM) trust, chair Glen Suarez reiterated his confidence in the Impax team.
GREEN IS STILL RELEVANT
While the political isolationism fostered by president Trump means the US has probably watered down its net-zero ambitions, that is not true for the rest of world.
Roughly a quarter of Impax’s £25.3 billion AUM are in the US, but two thirds of its clients are outside with 43% in EMEA (Europe, Middle East and Africa), 23% in the UK and 4% in Asia Pacific, where demand for Impax’s specialist sustainable environmental focus remains strong.
Meanwhile, management has not sat idly by and has implemented an efficiency drive to cut costs, reducing its headcount by 30 people which represents 10% of its wage bill.
With no debt and cash on the balance sheet the company is working to ‘optimise’ its capital allocation priorities and said it will provide more details in the half-year report on 27 May.
This includes a likely dividend debasement to a more sustainable level, given last year’s dividend of 27.6p per share is not fully covered by 2025 expected earnings per share of 22p.
It is worth noting Impax has slowly begun diversifying away from equities through the acquisitions of Absalon, a corporate credit specialist, and high-yield bond manager Sky Harbor.
In summary, we believe the negative sentiment surrounding ESG investing has likely run its course, and with investment performance on the up, Impax shares represent a great buying opportunity.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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