Brewin Dolphin (BRW) has spent recent years honing its focus on higher-margin discretionary wealth management, exiting non-core businesses and overhauling its back office. The wealth managers efforts are paying off, with organic asset growth accelerating and pre-tax profit margins hitting managements 25 per cent target during the final quarter of last year. Yet the shares trade at a discount to their peers and also offer a forecast yield well north of 5 per cent.
Shifting its business towards fee-based discretionary wealth management work and away from commission-charging advisory business has helped attract new funds. Last year it gained record net discretionary inflows including transfers of £2.3bn, equivalent to 8 per cent organic growth. That meant it exceeded its target of increasing assets by 5 per cent organically. Thats in contrast to peer Rathbone Brothers (RAT), which has the same target but only achieved 3 per cent growth. Taken together with market returns, Brewin managed to grow its discretionary funds by 15 per cent to almost £34bn. That meant it handsomely outperformed the MSCI WMA Private Investor Balanced Index, which was up just 6 per cent during the same period.
The company has got off to a good start this financial year, too, adding £0.7bn in discretionary flows, once again equivalent to 8 per cent organic growth. Part of the way the wealth manager has managed to exceed its targets is by building its intermediary relationships, which is slightly lower-margin work. Thats been helped by the launch of its white-label Managed Portfolio Service (MPS), used by intermediaries outsourcing the management of their clients money, a practice thats become more prevalent following the introduction of the retail distribution review (RDR) regulation. By the end of September 2017, MPS had £2.3bn in assets under management, up from just £0.6bn two years prior. That boosted assets from intermediaries to £10.4bn last year, or almost a third of total discretionary funds. This is up from 24 per cent in 2015.
Analysts at Shore Capital forecast 6.5 per cent organic discretionary asset growth this year and closing assets under management of £44bn. However, it has moderated its forecast for revenue yields slightly from 0.81 per cent to 0.795 per cent, as a greater proportion of business is expected to come via intermediaries, where Brewin gains less of a margin than it does from the direct-to-customer channel.
The benefit of discretionary funds is that they attract more stable fee income and are less dependent on transaction volume. Core fee income represented 71 per cent of overall core income last year, up from 68 per cent in 2016. That is just as well because lower market volatility has meant a reduction in transaction income across the wealth management sector during the past year.
Brewin has also been gradually growing its financial planning business, with sales up almost a fifth last year to £21m, or 7 per cent of the group total. And it is stepping up activities in the advice market. The growth in robo-advice products has been lauded by some as a threat to traditional wealth managers. While this is debatable, given the higher portfolio size typically managed by groups such as Brewin, the group is hedging against the risk. Last year it launched wealth planning and investment advice provider WealthPilot, a lower cost, simplified version of its core service, aimed at a broader audience. At the other end of the spectrum, it is developing a product for clients with more sophisticated wealth planning needs.
Shares in Brewin Dolphin are trading at just 13 times 2019 forecast earnings. Thats a discount to peers including Brooks Macdonald (BRK) at 15 times, Mattioli Woods (MTW) at 19 times and Rathbone Brothers at 17 times. Thats previously been justified by its less mature discretionary business. However, with organic growth and margins hitting managements targets, not to mention a forecast
Two years after implementing its strategic plan, Brewin Dolphin (BRW) is in a growth phase, says chief executive David Nicol. Its efforts consolidating its offices and focusing on higher-margin discretionary wealth management work have paid off. It gained record net discretionary fund inflows including transfers of £2.3bn during the year to September, taking the total under management to £33.8bn. That put the wealth manager on track to meet its target to increase discretionary funds by one-third via net new business alone by 2020.
Overall funds under management rose by 13 per cent to £40.1bn. That compared with a 6 per cent increase in the MSCI WMA Private Investor Balanced Index. Growth in the proportion of discretionary funds meant core fee income was up 16 per cent to £208m, while commission income continued to decline.
Management broadened its direct client product range, launching wealth planning and investment advice provider WealthPilot. The product is a lower cost, simplified version of its core service, aimed at a broader audience. On the other end of the spectrum, it is also looking to develop a product for clients with more sophisticated wealth planning needs. On the intermediary side which accounted for 90 per cent of net new fund growth a passive version of its Managed Portfolio Service platform was introduced.
Analysts at Cantor Fitzgerald expect adjusted pre-tax profits of £80m for the year to September 2018, giving EPS of 22.3p (from £70m and 19.6p in 2017).
The shares are up on our buy tip (331p, 22 June 2017) and trade at 16 times forward earnings. Thats a discount to the sector average. With the restructure over, we believe there is further upside to come. Buy.
Peel Hunt has maintained its buy rating on Brewin Dolphin (BRW), pointing to continuing strong fund inflows to the wealth manager and a low valuation.
Brewin Dolphin yesterday reported a 3.7% jump in assets, with record revenues of £77.3 million for the three months to the end of June.
Brewin Dolphins update highlights the continuing momentum in net business, with positive flows from intermediaries and into the managed portfolio service, said analyst Stuart Duncan.
Brewin is moving to the next phase in its development focusing on delivering improving levels of organic growth, in addition to considering further corporate activity to complement the recently acquired Duncan Lawrie [investment] business, he added.
The valuation multiple now stands at 11.1 times 2017 profits, which remains at a material discount to others in the sector.
Duncan maintained his 390p target price on the shares, which rose 1% to 354.6p yesterday.
"Shares held by private investors have reached a post-crisis record of Â£238.8 billion (as at 13 June), just shy of all-time record high of Â£247.3 billion reached seven years ago in 2007, a report by Capita has revealed.Joe Public's share of UK plc ..."
Share price doesn't often move by this much. Level of trading seems fairly average. Sells are bigger than buys but none of them huge. Can't see any explanation for the large fall. Still a bit too pricey but starting to look interesting again.
Random Hunter I traded BRW from around £1.36 to £1.70 as they fitted a 5% return today's results onerous leases and redundancy costs affected the profitability severely!!!
GOOD LUCK to those still holding
LONDON--Financial services company Brewin Dolphin Holdings PLC (BRW.LN) Wednesday reported a 44% decline in first half pretax profit due to significant restructuring costs and material provisions for onerous leases, but maintained its interim dividend payment, saying that improved equity market sentiment and signs of a return in economic confidence is resulting in positive trading conditions.
-Pretax profit for half year ended March 31 amounted to 6.9 million pounds, compared with GBP12.3 million in the year ago period.
-Onerous lease provision of GBP5.9 million versus nil.
-Redundancy costs GBP3.4 million versus GBP87,000.
-Total managed funds GBP28.1 billion at March 31, compared with GBP25.9 billion at Sept. 30, 2012 and GBP25.7 billion at March 31, 2012.
-Adjusted pretax profit GBP23.8 million versus GBP18.9 million.
-Total adjusted income GBP139.0 million versus GBP127.0 million.
-Diluted earnings per share 2.1 pence versus 3.5 pence.
-Adjusted diluted earnings per share 7.1 pence versus 5.5 pence.
-Board declares a maintained interim dividend of 3.55 pence per share.
BRW was a good buy last summer with a yield at over 5%, growth in funds under management almost every quarter and the promise of cost savings. The growth also benefited from a one-off reduction in the amount they have to pay into the Financial Services Compensation Scheme. I got in at about £1.40 and out at about £1.85 and picked up a nice divi as well. However, there have been issues with staff changes, relocation issues and the funds under management haven't maintained their rate of growth. They are also moving to a different client charging structure and I not sufficiently well versed in such things to predict how that might affect their funds under management, which seems to be the key thing that buffers the share price up and down. I would be cautiously optimistic and say this is a hold but I wouldn't be jumping in until the price is well below £2.00.
This certainly will improve the performance of the business going forward. By their own admission Corporate Advisory and Broking failed to meet its own targets over the last two years and certainly remains under pressure in the current environment.
As they point out in the release today the disposal will "...simplify the structure of the Group into that of a pure investment manager..."
Corporate Advisory and Broking with BRW represents less than 5% of sales, profits and employees.
Agree BAKone, 160 is an historical area of resistance/supply (as well as recently as 3 Dec. also as far back as March 2008), so it could be expected to be so again. Although I was surprised at the extent of the reaction.
147-150 should hold as support, although if it breaks this then 132-135 has shown good demand.
This as you say looks like a purely technical move on higher than average volume, as fundamentally it is a reasonable investment, with growth and improved weighting on the higher margin discretionary business.
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