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.’