BULL POINTS:
■ Rise in discretionary funds managed
■ Expanding network brings in fresh funds
■ Good dividend yield
BEAR POINTS:
■ Subdued investment banking
■ Low interest rates on cash balances
Brewin Dolphin's bread-and-butter income is generated by charging clients a fee to manage their investments. And, despite last year's rollercoaster ride in equity markets, client loyalty remained high. In fact, total funds under discretionary management - where clients are charged a higher fee than for funds under advisory management - ended 2008-09 16 per cent higher at £11.8bn. This is really impressive considering that in the same 12-month period to end September, the FTSE 100 index was unchanged.
| IC Tip Rating |
|---|
Tip style: Growth Risk rating: Medium Timescale: Long-term |
Attracting new business is tough when investors' confidence is shaken, but Brewin Dolphin went ahead with plans to increase the size of its fund management team, adding six investment groups during the year. And the results have been good - the new teams brought in £127m of funds. What's more, investment managers who had joined in 2008 have since brought in £1.3bn in discretionary funds and £700m in advisory funds. So, despite the tough trading climate, in 2008-09 Brewin Dolphin increased operating profits from discretionary portfolio management from £18.9m to £19.4m and from £10.8m to £11.2m on the advisory side. Recurring income as a percentage of total income was steady at 54 per cent. Looking ahead, there may be one or two more additions to the branch network of 40 offices around the country, but the main thrust for growth will come from exploiting the existing branches.
| BREWIN DOLPHIN (BRW) | ||||
|---|---|---|---|---|
| ORD PRICE: | 136p | MARKET VALUE: | £310m | |
| TOUCH: | 135-136p | 12-MONTH HIGH: | 173p | LOW: 108p |
| DIVIDEND YIELD: | 5.2% | PE RATIO: | 11 | |
| NET ASSET VALUE: | 56p | NET CASH: | £65m | |
| Year to 27 Sep | Income (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2006 | 174 | 31.1 | 11.1 | 5.63 |
| 2007 | 209 | 39.9 | 14.5 | 6.88 |
| 2008 | 207 | 32.0 | 12.4 | 7.10 |
| 2009 | 212 | 21.9 | 10.8 | 7.10 |
| 2010* | 236 | 40.6 | 12.5 | 7.10 |
| % change | +11 | - | +17 | nil |
Normal market size: 2,000 Matched bargain trading Beta: 0.5 *Arden Partners estimates (Profits & earnings not comparable with earlier years) | ||||
However, the picture on the investment banking side has been dull because many companies drew in their horns in the face of an economic slump. So income fell as corporate activity dried up. Even so, after a first-half loss of £0.8m, the division was back to trading profitably by the year end.
Trading in the first quarter of 2009-10, which covers the last three months of 2009, has shown that both sides of Brewin's business have improved strongly. Operating income from investment management has risen by 11 per cent from a year earlier, while investment banking income rose by 11.5 per cent. And funds under management over the same period rose by 6 per cent to £21.7bn. The one downside is the effect of lower interest rates. This meant that the group's share of interest receivable on clients' deposits fell by 42 per cent.
Meanwhile, Brewin Dolphin continues to grow its business-development team, which introduces the group's services to independent financial advisers. In the year to September 2009, the team secured £325m in new funds. Other revenues to attract more client money that are being developed include managing charities' assets, where funds under management rose from £1.3bn a year earlier to £1.5bn.
