Although I continue to be confident in Highbury Financial (OTC:HBRF) over the long term, I have clearly been wrong thus far in the short term on my thesis for the company as the credit crisis has been more severe than I anticipated. As a result, the company has not been able to make their next step in their strategy to acquire additional asset management firms. The stock has been cut roughly in half from my initial purchases of the shares and has cost the overall portfolio several hundred basis points, which has resulted in only slightly better than peer and Index performance over the past six months.
I talked with Richard Foote, CEO of Highbury Financial, to get some color from him on what he thinks is going on. He points to the following reasons (in no particular order) for the decline in share price:
1. Redemptions at shareholder level forcing security sales.
2. Reduction in prime brokerage margin availability forcing security sales.
3. Impatience at shareholder level driven by lack of second deal announcement.
4. Client concentration concern.
5. Reductions in Aston AUM from market action and outflows as reported monthly by Morningstar.
6. Possible loss of confidence in management (the Highbury team, not Aston). 7. Thin float and small capitalization leads to volatility upon sales and lack of new buyers.
As for my thoughts, I would agree with his points and think this is a case in which many shorter term oriented investors have become tired of the negative action in the stock and with the low float causing quick and sudden movements.
The stock is selling for a p/e now in the mid to high single digits of what I would expect the company to earn for this upcoming year (even assuming little growth in AUM) and we are starting to see improvement in the returns and Morningstar ratings on many of the Aston Funds. In my professional career, I find this stock the least expensive that I have ever seen in the asset management space and continue to have confidence in the ability of Aston to grow assets and for Highbury to find accretive acquisitions when credit markets improve.