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Why Rathbone’s Jupiter wealth buy could be very special

Why Rathbone’s Jupiter wealth buy could be very special

Rathbone Brothers' capture of Jupiter’s wealth business has been met with a chorus of approval from analysts.

Rathbones was understood to be competing with the likes of Brown Shipley and Close for the private client and charity unit, which it sealed in a £43.5 million deal today.

The wealth firm, which also revealed the acquisition of Tilney's London team today, is funding the deals through a £24.4 million share placing.

The market reacted positively, with shares in Jupiter up 3.4% at 414.6p at 10.55am, while Rathbones was 1.76% higher at £18.46.

Asset retention

One of the questions raised is whether Jupiter’s asset management business will hemorrhage assets as a consequence of the sale. Around 30% the wealth arm’s £2.1 billion in assets are held in Jupiter funds.

Citi analysts Haley Tam and Abhijeet Sakhare are not concerned by this as they repeated their buy rating and 440p price target on Jupiter, which is led by chief executive Maarten Slendebroek (pictured).  

‘The likely retention of these assets by Jupiter funds should be no different after the transaction as to now,’ the pair said in a note to clients.  ‘Suitable Jupiter funds previously chosen for private clients should remain suitable after the deal.’

Core to Rathbones

Canaccord Genuity analysts Robin Savage and Arun Melmane were particularly appreciative on the impact the deal would have on Rathbones, prompting them to upgrade their rating from hold to buy with £19.50 price target.

The pair highlighted that on a pro forma basis the Jupiter and Tilney deals would increase Rathbone’s asset under management by 12.7% to £24.8 billion. 

‘We expect these acquisitions to enhance Rathbone’s FY15e EPS by 3.8% to 130p,’ Savage and Melmane said. 

‘Our new forecasts reflect the increase in AuM in Q214 and Q314, assuming marginal revenues are similar to Rathbone’s and the marginal profit contribution pre-central costs and migration costs is 50% of additional revenues.’

Meanwhile JP Morgan Cazenove’s Rae Maile and Edward Morris reiterated their overweight on Jupiter, believing the firm got a good price for a business which is not essential to its prospects.  

‘We estimate that the profit contribution to Jupiter will have been in the region of £2 million per annum compared with our 2014 estimated Ebitda of £160 million,’ the duo pointed out. ‘This is, we believe, a more than acceptable exit price for a business which was not core to Jupiter.’

RBC Capital’s Peter Lenardos, who has an outperform rating on Jupiter, believes the deal will prove to be far more profitable to Rathbones than Jupiter.

‘We believe this is a positive step for towards streamlining Jupiter’s business as it seeks to build out its international distribution platform,’ Lenardos said.

‘Further we believe the AuM will be more profitable for Rathbone than they were for Jupiter as this business was not a focus for Jupiter, whereas the asset under management are part of Rathbone's core business activity.'  

Special dividend

Lenardos believes the cash Jupiter receives from the transaction should allow Jupiter to continue to strengthen its balance sheet and should support expanding capital returns to shareholders.

‘We now believe a special dividend concurrent with 2014 results in early 2015 is likely, as opposed to extraordinary capital returns commencing from the end of 2015.’

Numis’ David McCann, who has an add rating on Jupiter, predicts the majority of proceeds from the deal with be returned to shareholders through a special dividend.

‘We would expect around two-thirds of the final consideration received to be distributable to Jupiter shareholders (after deal costs, closure costs, taxes etc…), so there is potential for incremental 4-6p of special dividend at the FY14 stage (in addition to other special dividends already forecast),’ McCann said.  

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