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Tim Steer: why Brewin Dolphin scores 100 out of 100

Artemis' AAA-rated manager explains why he's backing Brewin Dolphin and what's compelled him to buy into the wealth firm following last month's Budget.

Tim Steer, the Citywire AAA-rated manager of the £687 million Artemis UK Growth fund, has revealed that Brewin Dolphin is the market’s most attractive stock based on his screening tool.

Over the past three years, Artemis UK Growth has returned 56.3% compared with 31.2% from the FTSE All Share index and 37.6% from its IMA UK All Companies sector.

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Steer employs a screening system called Market, an acronym comprising multiples (factoring in price-to-earnings ratio, dividend yield, price to cashflow, and enterprise value to sales), accounts (the financial strength of a company, including interest cover and gearing), revisions (consensus upgrades or downgrades to metrics such as earnings per share and dividends), kinetics (the share price momentum), earnings growth, and timing (short-term indicators on the best time to enter or exit a stock).

Combined, this gives each company a score from zero to 100, with 100 indicating the most attractive stock.

‘Does this screening tool work?’ Steer asked. ‘I think it does most of the time. It won’t work particularly well if you have big shocks to the system like a banking crisis or a euro crisis, but I think the graph (pictured) shows that this screening tool is something worth listening to. It has outperformed dramatically over the past 14 years and particularly recently. You can see from the graph over the past two years that the outperformance of this screening tool has been pretty good.’

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So what is topping the Market table at the moment? Brewin Dolphin, with a perfect score of 100. The wealth manager’s individual marks are 57 for multiples, 100 for accounts, 83 for revisions, 87 for kinetics, 85 for earnings growth, and 17 for timing. It is the joint Market leader with easyJet, also on 100.

‘I noticed that on the day of the Budget Hargreaves Lansdown shot up,’ Steer said. The fund supermarket leapt 14.5% that day, as investors backed it as a beneficiary of changes to ISA and pension rules.

Brewin Dolphin, in contrast, has been flat since the Budget even though Steer believes the business – managed by chief executive David Nicol (pictured) – will profit from the same trends.

‘I have to say I have recently been buying some Brewin Dolphin because of the Budget changes, but also because Brewin Dolphin on my screening scores 100 out of 100. That is not a bad score.’

Hargreaves Lansdown, which topped the Market rankings in 2010 and has subsequently surged 300%, no longer appears in the system’s top 30.

One other wealth manager, Rathbone Brothers, does however come in at number 15 with a score of 96. It beats Brewin Dolphin by 63 to 57 on multiples and by 58 to 17 on timing, but trails it on kinetics by 57 to 87 and on earnings growth by 60 to 85.

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On the broader investment industry, Steer argued that there would be further mergers and acquisitions after a busy period that has already seen deals between Standard Life and Ignis, Aberdeen and Swip, and Schroders and Cazenove among others.

‘Fund management fees are falling because of RDR and lots of other reasons. Frankly, I think there are too many fund managers out there and too many individual funds. I do see consolidation. The vast majority of us are very capable of running more money, so I do think there is a good chance there will be more consolidation.’

As with the Aberdeen/Swip transaction, Steer added that distribution would be a major focus for asset managers. ‘Distribution is as important, I think, for a fund manager as the actual fund management. If you don’t have it, as a fund manager, you have a problem.’

Just one fund group currently appears on the Market screen’s top 30: Jupiter, headed by new chief executive Maarten Slendebroek (pictured), with a score of 92. It features strongly on the accounts, revision and kinetics metrics, but is dragged down by a lowly 26 on earnings growth and only three on timing.

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Within financials generally, Steer’s A-rated colleague Derek Stuart has also revealed that he topped up his holdings in insurers L&G and Resolution after they crashed on Budget day. The former dropped 8% and the latter 10% after the government introduced reforms to the annuity system.

‘I think there is clearly a short-term impact and annuity sales, which are very profitable, will be impacted,’ acknowledged Stuart.

‘But do I think this is an industry that disappears completely? No, not at all. I think certain people in this country seek the security of a regular cashflow product. Whether it’s an annuity or some other product, I think there will still be demand for that. There will also be people who have actually been forced into those products who don’t want them and will withdraw cash, so we have to expect a short-term impact from that.

‘But I think we also have to recognise that the whole pension and savings market is a massive growth one. We need to save more for the future. These companies are not just one-product companies. They have back books with great cashflow and growth products. The annuities business will slow down and fall quite quickly in the very short term, but I think there are other products out there for growth. I can understand why there was a bit of weakness, but I thought the weakness on Budget day was overdone.’

The insurers are owned within Stuart’s (pictured) £1.3 billion Artemis UK Special Situations fund, which has returned 41.9% over the past three years compared with 31.2% from the FTSE All Share index and 37.6% from its IMA UK All Companies sector.

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Derek Stuart
Derek Stuart
61/155 in Equity - UK (All Companies) (Performance over 3 years) Average Total Return: 39.70%
Tim Steer
Tim Steer
53/155 in Equity - UK (All Companies) (Performance over 3 years) Average Total Return: 40.74%
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