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Wealth bonanza: the Rathbones & Brooks Macdonald bargains
by Dylan Lobo on Oct 24, 2013 at 10:01
Wealth managers have been on a fabulous run of late.
Up to 21 October, Apcims benchmark for private clients was 9.2% higher over the last 12 months and 2.2% higher this month alone.
A major factor behind this performance is rising markets, which have boosted sentiment across the sector given these firms' earnings capacity in intrinsically linked to equities.
Following this strong run, Canaccord Genuity analysts Robin Savage and Arun Melmane believe wealth managers can continue to go from strength to strength. 'We expect UK wealth managers to outperform the FTSE equity and Apcims indices; the gearing should reflect their ability to attract net inflows,' they explained.
The duo accept that a downturn in markets could impact the investment case. 'Wealth managers' revenue depend on the value of assets under management. An unexpected fall in the value of financial markets at fee charging date (normally quarter end) would reduce quarterly revenues and consequently quarterly earnings.'
Against this backdrop the pair has published a detailed note on where they believe the best investment opportunities lie in four of the sector’s big boys.
While they see regulation as a big risk to sector, they believe this foursome is will equipped to tackle the tighter regime. 'Regulation is the most critical risk for most regulated businesses. In our opinion all four quoted wealth managers appropriately control regulatory risk.'
Rathbones: reiterate buy
In its trading update posted on 17 October Rathbones said total funds under management rose from £18 billion to £20.8 billion in the first nine months of the year, while net operating income was 12.7% higher.
While Rathbones' - headed by Andy Pomfret (pictured) - share price is up 25% in the 12 months to 31 October, Savage and Melmane see plenty more value. ‘Rathbones third quarter trading update confirmed that trading is in line with expectations and annualised organic net inflows have risen to the 5% to 7% range,’ they said.
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