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RBC hikes Brewin price target 24% on 'believable expansion story'
by Dylan Lobo on Nov 05, 2012 at 11:24
RBC Capital Markets has significantly increased its price target on Brewin Dolphin ahead of full-year numbers from the private client stockbroker.
RBC, which serves as the housebroker for Brewins, repeated its outperform rating on the stock in a note titled the ‘Margin expansion story is believable’ as it lifted his price rating by 35p, or 24%, to 210p.
Brewin is targeting an adjusted operating margin of 20% by the end of 2014 as part of a strategic review which chief executive Jamie Matheson (pictured) vowed will leave the firm 'fitter'.
‘We believe this is achievable as a result of an ongoing IT system upgrade and planned cost reductions,’ RBC analyst Peter Lenardos said. 'Further, Brewin's ongoing (funds under management) FUM mix towards higher-margin discretionary FUM should also positively impact operating margins.'
As a consequence Lenardos has upgraded his margin forecast increase for 2013 from 14.8% to 15.1% and from 18.1% to 19.1% in 2014. ‘We believe that Brewin Dolphin should likely achieve a margin of over 20% during the financial year 2015, he said.
Brewin's margin has come under pressure on the back of market volatility, falling from 16.2% in 2010 to 14.8% in 2011. Lenardos expects this to fall further to 14% this year before the turnaround begins.
He explained: 'In FY12 we believe, because of volatile market conditions, increased regulation (including the pending changes as a result of the retail distribution review), redundant IT systems (as a result of ongoing system development and upgrades) and the phase-in of the new fee schedule, that the adjusted operating profit margin should dip further to 14%.’
Brewin is scheduled to post its full-year numbers on 5 December. At 10.30am shares in the firm were up 1.3p at 183.3p.
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