View the article online at http://citywire.co.uk/wealth-manager/article/a673223
Clash of the listed wealth titans: fund managers’ top picks for 2013
by Danielle Levy on Apr 15, 2013 at 08:24
Listed wealth management companies offer investors the opportunity to benefit from rising markets and tap into the pension market’s shift towards increasing retail investment.
However, with markets up from summer lows and the listed UK wealth and asset management sectors trading on an average of 16 times one-year forward earnings, up from a long-term average of 14 times, according to Numis, some argue the sector is starting to look fully valued.
If this is the case, earnings upgrades will be necessary to drive share prices higher and stock selection is likely to prove even more important.
Backing the Brewin turnaround
Brewin Dolphin is one stock that has offered investors the prospect of participating in a turnaround story, with management two years into a business review that aims to achieve an operating margin of 20% by 2015.
Now on an operating margin of 16.4%, investors are divided over whether the stock can overcome a number of headwinds. These include the planned departure of chief executive Jamie Matheson (pictured), who is to be replaced by David Nicol who joined the company a year ago from Morgan Stanley, alongside the hit from the removal of trail commission post-retail distribution review.
Numis anticipates there could be scope for disappointment over the short term and has the stock on a reduce rating as a result. ‘There appears to be more pressure on the revenue yield than many anticipate (trail income being lost faster than repricing is replacing it with fees due to implementation delays and no major pick-up in commissions, despite better retail investor sentiment) and project delays (so additional costs),’ the company noted.
Nonetheless, Numis expects wider operating margins improvements to be delivered and said board changes could help. However, it highlights ‘significant execution risk’ and describes a short-term turnaround as unlikely.
Citywire AAA-rated Alex Wright at Fidelity does not share this scepticism. He holds Brewin as a 4% position in the Fidelity Special Values trust, and had the stock as a top 10 position in his Fidelity UK Smaller Companies fund at the end of February.
He argues the multi-year turnaround story remains intact and he expects a continuation of the same strategy under the new CEO. Wright still has conviction that over time Brewin’s margins will end up closer to the peer group average, if not higher, and he does not hold any other wealth managers.
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- Fidelity UK Smaller Companies A Acc
- Royal London UK Equity Income A
- CF Eden UK Select Opportunities A Acc
- Threadneedle UK C2
Look up the shares
- Brewin Dolphin Holdings PLC
- Fidelity Special Values PLC
- Rathbone Brothers PLC
- Ashcourt Rowan PLC
- Brooks Macdonald Group PLC
- St. James's Place PLC (SJP.L)