The Financial Grimes: Brooks Macdonald, Rathbone

This top City analyst reviews the financial sector stocks making headlines today.

Jeremy Grime spent 15 years as a financial sector analyst, working at Altium Capital, RBC Capital Markets, Panmure Gordon and most recently as Director of Research at finnCap. Jeremy is also a qualified accountant.

Jeremy's blog is written with more experienced investors in mind. However, we have included a brief glossary at the bottom of the page to help those less familiar with some of the language used. For more on key financial metrics and valuation ratios click here.

News

Back in 2012 when Greek bond yields reached 34% if someone had suggested they would yield less than US treasuries 7 years later a kind employer would have sent for a yellow van. Others would have taken the analyst for a conversation in a room and the analyst would never be seen again. But it has happened.

• Morses Club announced the appointment of Gary Marshall as COO of Shelby Finance, the digital business. Previously he was COO of Sainsbury’s Bank. 

Brooks Macdonald – Trading Update 

Share Price 1985p

Mkt Cap £276m

Conflict Disclosure: No Holding

Brooks Macdonald (LSE:BRK) is an investment management firm.

• Update Net inflows over the quarter were almost flat at £2 million but market tailwinds lifted AUM 3.5% to £13.2 billion. Flows were respectable in the UK but International continues to suffer outflows due to team departures. Legacy matters, again from the international business, have reached a settlement which was previously provided for. Outlook refers to a challenging environment.

• Numbers The statement says revenue growth is expected to be broadly in line with AUM growth.  AUM is up 6.8%over the year and expectations are for a 4.6% revenue increase.  
• Valuation PER 17.1. Yield 2.6%

• Conclusion It looks like the restructuring is drawing to a close which makes it interesting but the challenging outlook isn’t encouraging. On 17X PER this still looks a bit high.

Rathbone – H1 Results 

Share Price 2175p

Mkt Cap £1.22 billion

Conflict Disclosure: No holding

Rathbone (LSE:RAT) is an investment management firm.

• Update AUM of £49.2 billion was up £1.67 billion from March but within this the company suffered modest net outflows. Over six months net organic growth is -0.2%. Revenue was up 13% to £174 million. Underlying PBT fell 3.5% to £46.6 million and EPS decreased to 71.4p (2018 76.1p). Three reasons are cited: unit trust box profits, executive awards and the higher FSCS levy. Outlook is cautious

• Estimates Rathbone had £39.9 billion AUM last June. Forecasts look for 9.2% revenue growth in the year to Dec 19. This may be a little full at the PBT level given the higher costs

• Valuation PER 16.1 Yield 3.2%

• Conclusion The cautious outlook and likelihood of downgrades will result in shares moving down. This looks like a hiatus and coincides with a new CEO who may possibly be getting the dirty washing out.  Sometimes that creates an opportunity. But not today.

For information about Jeremy's 'deep dive' company analysis, you can email him at jeremy@charltonillingworth.co.uk

Jeremy Grime is an independent equity markets analyst and freelance contributor, not a direct employee of interactive investor.