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Why it makes 'financial sense' for Jupiter to sell its wealth arm

Why it makes 'financial sense' for Jupiter to sell its wealth arm

Brokers have got excited about the prospect of a special dividend from Jupiter on news it could sell its wealth business at a significant premium.    

According to the Sunday Times, an 'unsolicited' approach for the business prompted Jupiter to contemplate a sale with Rathbones, Quilter Cheviot, and Towry among those interested in mounting a bid. 

The asset management firm is said to have appointed advisers from investment bank Evercore to conduct a strategic review of the arm, with potential suitors believed to be prepared to pay as much as £50 million for the business.

Numis analyst David McCann estimates the business is worth between £27-34 million (excluding balance sheet capital) and reckons a firm with a wealth management focus would be more successful at growing the business.

He also points out that the three firms linked with a bid could extract modest back office cost synergies, which would allow them to pay a little more for the business.

'Thus on the face of it, a £50 million offer would appear to make financial sense for Jupiter to sell,' McCann said in a note to clients. 

'Moreover, we believe that this price could still allow modest value accretion for a trade buyer, since they would likely be able to extract modest back office cost synergies and perhaps more importantly would have the proper resource to allow this business to grow more quickly, given a core rather than non-core focus.'

McCann also highlights that Jupiter's 'historical conservatism' on acquisitions and its now 'healthy' balance sheet means there is a good chance the firm could return proceeds to shareholders through a special dividend. He believes this could be as high as 11p per share if the wealth arm is sold for £50 million.   

The news comes as Maarten SlendeBroek, who joined the group in September 2012, prepares to replace Edward Bonham Carter (pictured) as chief executive in March.

Jupiter’s private client business has been running since 1985. In 2008, the firm signalled its intent to grow the unit by hiring two separate wealth management teams from Singer & Friedlander and Bestinvest, which doubled its private client manager headcount.

In the March of the following year, Bonham Carter told Wealth Manager: ‘Our private client operation has been growing well recently. Late last year, we more than doubled the number of private client fund managers in our team as we expect this to be a key area of growth.’

In September 2012, Jupiter recruited Schroders’ Andrew Clark to lead the private client business and steer it through its next growth phase.

However, the division continues to very much play second fiddle to the funds arm.

In Jupiter's last trading update covering the three months to 30 September the private client division held £2.2 billion in assets under management and registered a net inflow of £15 million.

This compared to an inflow of £278 million in the funds business, which held £23.3 billion in assets.

McCann, who repeated his add recommendation and 436p price target on the stock, said it is important Jupiter's asset management business keeps a portion of the private client mandates following a disposal.     

'We estimate the private client fund's under management (FuM) is as much as on third invested in Jupiter funds,' he said. 

'The terms of any deal will need to make it clear as to the likelihood of Jupiter therefore maintaining some of the FuM (and thus some revenue) within the other parts of the group (i.e. mutual funds and investment trusts) and any potential unwind period of this.'

At 10am shares in Jupiter were trading at 388.5p, a gain of 0.91%.  

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