The Financial Grimes: Never so relaxed that markets are weak

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.

This weak pound together with weak markets is stimulating M&A activity. Yesterday, the Hong Kong Exchange makes an offer for the London Stock Exchange (LSE:LSE), the same day as the South African Growthpoint launches a partial offer for Capital & Regional (LSE:CAL).  On Tuesday this week, Galliford Try (LSE:GFRD) and Bovis Homes (LSE:BVS) announced they are in talks to merge their housebuilding business.  I don't remember feeling so relaxed that markets are weak.

Value

• Maybe value is about to come back after a very long wait. This chart is of the ishares S&P 500 value ETF relative to the ishares S&P 500 growth ETF. And we have so many cheap shares, particularly at the smaller end of the spectrum.

Brooks Macdonald – FY Results 

Share Price 1,960p

Mkt Cap £273 million

Conflict Disclosure: No Holding

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

• Results Revenue is up 7.3% to £107 million off the back of discretionary AUM up 6.8% to £13.2 billion. Underlying PBT up 11.8% to £21 million as the operating margin reached 19.6%. There is a £4.8 million goodwill write down, a £3.3 million restructuring charge, and a client relationship impairment charge. The tax rate increased resulting in EPS up 2.2% to 125.9p. Cash is £35 million and the outlook statement refers to improving margins and acquisitions.

• Estimates Revenue is in line with expectations but PBT looks to be usefully ahead of the £19.1 million consensus.  The £22.5 million expected for the current year could be a little light.

• Valuation PER is 16.7X and yield 2.7%. Brewin trades at 15.9X and Rathbone at 17.7X.

• Conclusion It is two years the new CEO has been in place over which time the shares are down 10%. There have been a significant number of issues to deal with around the Spearpoint business, as well as streamlining the operations and eliminating overlap. I get the sense this is drawing to a close as the company is now looking at acquisitions again while there is margin upside potential. With a low (ish) valuation, this looks like a good time in the companies lifecycle.