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Rathbones's fee mix is moving in the right direction

The wealth manager is managing to offset declining trading commission by earning more in fee income
July 27, 2016

Wealth managers across the sector have gradually clocked on to the perks of regular fee income over commission revenue. For wealth manager Rathbones (RAT), which has long been a proponent of the discretionary management that others are moving towards, fee income represents an increasing proportion of operating income. Net fee income was up 12 per cent in the first half of the year at £87.1m. This was offset by lower net trading commissions, which were down by a quarter to £19.4m.

IC TIP: Buy at 1856p

Costs associated with last year's acquisition of financial advisory company Vision weighed on pre-tax profit. However, the good news is that organic net inflows for the investment management business were £0.3bn, representing an annualised growth rate of 2.5 per cent. Against a backdrop of mass redemptions across the industry, the unit trust business also gained net inflows of £259m, taking funds under management there to £3.3bn.

Management has focused on growing its network of independent financial advisers in order to boost its distribution, as well as building out its research function. This bumped up underlying operating expenses by 7 per cent to £85m.

Analysts at broker Numis expect adjusted pre-tax profit of £71.6m and EPS of 117p for the year ending December 2016 (from £70.4m and 116p in 2015).

RATHBONE BROTHERS (RAT)

ORD PRICE:1,856pMARKET VALUE:£896m
TOUCH:1,856-1,861p12-MONTH HIGH:2,373pLOW: 1,577p
DIVIDEND YIELD:3.0%PE RATIO:23
NET ASSET VALUE:579p* 

Half-year to 30 JuneTotal operating income (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201511731.853.221
201612022.835.721
% change+3-28-33-

Ex-div: 8 Sep

Payment: 5 Oct

*Includes intangible assets of £170m, or 353p a share