Rathbone raises funds under management

A fourth-quarter trading update this month from fund and wealth management specialist Rathbone Brothers (RAT) revealed that the group had delivered a solid performance during 2012 - indeed, assets under management rose 13.4 per cent to £17.98bn.

This is especially impressive given that the FTSE 100 index and the FTSE Association of Private Client Investment Managers and Stockbrokers (APCIMS) index both grew by just under 6 per cent. Moreover, and despite relatively subdued financial market conditions, the overall annualised growth rate of net inflows on the investment management side of the business was only down marginally - from 7.5 per cent in 2011 to 6.2 per cent - although the acquisition of £486m-worth of acquired funds under management helped.

Funds managed by Rathbone Investment Management rose by 13.2 per cent to £16.71bn, but the underlying annualised rate of net organic growth fell from 5.4 per cent in 2011 to 3 per cent. Meanwhile, funds with Rathbone Unit Trust Management rose by 16.5 per cent to £1.27bn, although net inflows did fall from £97m a year earlier to £66m. But while management admitted that last year was challenging, it expects to see some improvement over the coming year, with equity markets ending last year on a more positive note.

Numis Securities says...

Reduce. We rate Rathbone Brothers as one of the quality acts within the asset management sector and, as such, it merits a slight premium rating, underpinned by a consistent net inflow record, steady operating margin and a significant bias towards recurring fee income. But the shares trade on 17 times 2013's forecast earnings of 79.6p, which represents a premium to the UK market of around 45 per cent - we regard that as too much of a premium. As such we judge the share price as being too high and have a set a target price of 1,200p. Pre-tax profit for 2013 is expected to rise from 2012's £44.2m to £49.8m.

Peel Hunt says...

Buy. Assets under management for the year were comfortably ahead of our forecast and the positive tone to equity markets in recent weeks provides a favourable backdrop going into 2013. While organic growth in assets under management was lower, at 3 per cent, this was still an improvement on the 2.8 per cent growth rate recorded at the end of the third quarter. The shares are now trading on a December 2013 enterprise value to net operating profit after tax multiple of 14.5 - marginally below the sector average of 15. That doesn't look expensive given Rathbone's record of consistent inflows and high operating margins. Expect end-2013 adjusted pre-tax profit of £48.9m, giving EPS of 79.8p - our price target stands at 1,445p.