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Costs strike Charles Stanley

RESULTS: Charles Stanley's earnings have been hit by significant costs, not least due to a legal row with rival Brewin Dolphin
June 23, 2014

Wealth manager and stockbroker Charles Stanley (CAY) suffered a "year of significant cost" after spending heavily on investment and acquisitions. Adjusted pre-tax profit was flat in the year to end-March, at £13.5m, after underlying costs jumped nearly 19 per cent.

IC TIP: Hold at 426p

Establishing an office in Leicester sliced £2.4m from profits. Unfortunately, it has also left Charles Stanley embroiled in a legal row with rival Brewin Dolphin (BRW) over the staff that quit Brewin to set up the office. Brewin has issued a writ claiming breach of contract and seeking compensation. Other costs include December’s acquisition of Evercore Pan Asset Capital Management, which came with over £500m of pension fund assets, while £1.3m was invested in direct-to-client web service Charles Stanley Direct.

Charles Stanley did make solid operational progress, however, with total funds under management rising 14 per cent in the period to £20.1bn. That's all the more impressive because the FTSE100 index rose just 2.9 per cent. Significantly, discretionary funds - where fees are higher - soared 28 per cent to £8.2bn, while total revenue from higher-margin managed business grew 20 per cent.

Partly reflecting ongoing regulatory costs, broker Peel Hunt has reduced its adjusted EPS estimate for fiscal 2015 by 8 per cent to 28.2p (from 22.4p in 2014).

CHARLES STANLEY (CAY)

ORD PRICE:426pMARKET VALUE:£194m
TOUCH:422-430p12-MONTH HIGH:522pLOW: 398p
DIVIDEND YIELD:2.9%PE RATIO:41
NET ASSET VALUE:183p*NET CASH:£36.4m

Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201011510.315.49.45
201112613.421.410.75
20121208,513.111.25
20131289.114.911.75
20141496.110.512.25
% change+16-33-30+4

Ex-div: 9 Jul

Payment: 8 Aug

*Includes intangible assets of £35.3m, or 77p a share