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Brewins £32m tech hit: what the analysts said

by David Campbell on May 14, 2014 at 07:00

Brewins £32m tech hit: what the analysts said

Royal Bank of Canada was one of a series of brokers to maintain its outlook on Brewin Dolphin yesterday after the investment manager said it would write down £32 million in IT costs.  

RBC Capital Markets analyst Peter Lenardos pointed out that the pre-tax impairment charge would leave the capital position unchanged, ‘but the £32 million loss could be negative for sentiment’.

Shares in Brewin Dolphin ended yesterday 2.26% down at 320p. RBC has the company on an outperform rating with a price target of 327p. 

Canaccord Genuity reaffirmed its hold rating on the stock and its 304p price target. N1 Singer held the business at a buy with a 324p target, while Numis maintained its hold with a 350p target.

Analysts followed by Reuters rate the business a hold over a buy by a 2:1 margin, with a median current price target of 318p.  

An outstanding £15 million of charges remained to settled over the next 10 years, but Lenardos said in his view ‘the most likely outcome is the non-payment of the £15 million’.

He added that on the upside Brewin Dolphin’s profit margin before tax this year was likely to exceed the company’s target of 20%.

‘While £32 million and potentially £15 million more has been wasted, we would rather that the issue be identified and addressed now as opposed to at the project's conclusion,’ said Lenardos.  

‘We believe the phased-in approach allowed the company to test the system before a broader rollout occurred.

‘Since the company trades at 15.4 times 2015 earnings per share, a premium to the diversified financials sector at 13.5 times, we believe it faces a risk of derating. However, we emphasise that there is no impact on our financial forecasts… the business appears to be performing ahead of guidance and our forecasts.’


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