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Brooks Macdonald expands

Wealth management group Brooks Macdonald is growing both organically and through acquisition
September 18, 2014

It has been a year of change for Brooks Macdonald (BRK) as the wealth management group continued to adjust to the changes introduced by the Retail Distribution Review (RDR).

IC TIP: Hold

The key RDR-related impact was an increase in regulatory costs, but these have now been absorbed and chief executive Chris Macdonald reckons that internal costs have peaked. Profit margins, however, have been compressed as a result and Mr Macdonald reckons the process of passing on these cost through higher fees could take a year or so. Crucially, though, group fee income grew 12 per cent year-on-year to £66.4m.

Discretionary funds under management rose 28 per cent to £6.6bn, too. Moreover - and even without acquisitions and the stronger investment performance - net new business growth reached an impressive 15 per cent. DPZ Capital, meanwhile, joined the group in April and added £360m of discretionary funds. Since the year-end, the group has also bought Levitas Investment Management Services. That will provide greater exposure to pensions fund management which has been growing significantly following the introduction of autoenrolment.

Broker Peel Hunt reckons Brooks can deliver the strongest growth in assets under management in the sector. However, given the cost of further investment, its 2015 forecasts have been cut by 7 per cent to adjusted pre-tax profit of £15.2m and EPS of 91.3p (from £13.3m and 86.2p in 2013).

BROOKS MACDONALD (BRK)
ORD PRICE:1,425pMARKET VALUE:£ 194m
TOUCH:1,400-1,425p12-MONTH HIGH:1,817pLOW: 1,301p
DIVIDEND YIELD:1.8%PE RATIO:21
NET ASSET VALUE:496p*NET CASH:£18m

Year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201035.15.738.19
201152.27.351.915
201253.38.557.418.5
201363.210.465.922.5
201469.110.669.026
% change+9+2+5+16

Ex-div:24 Sep

Payment:28 Oct

*Including intangible assets of £55m or 403p a share