Rathbones drives underlying margins

First, the bare bones on the funds front: Rathbones (RAT) built its total funds under management by 24.7 per cent to £68.2bn through 2021, with numbers buoyed by the acquisition of Saunderson House, which brought in another £4.9bn. Net inflows of discretionary/managed funds were up by 30 per cent.

A marked step-up in fee income drove underlying pre-tax profit to £121mn, 30.5 per cent ahead of the 2020 comparator, as cost and revenue growth were broadly in balance through the period. Operating expenses increased from £322mn to £341mn during the year, though the underlying operating margin increased by 240-basis points to 27.7 per cent.

The increase in statutory profits was achieved despite planned deferred acquisition and integration costs of £6.4mn relating to Speirs & Jeffrey, along with costs of £3.7mn incurred in relation to the Saunderson acquisition. We should get a better idea of how the integration process is progressing by the half-year mark.

The wealth manager is pursuing what it terms a “strategic change agenda”, with the aim of providing “a holistic range of wealth management and advice services”. Beyond the new-age corporate jargon, that probably amounts to enhanced cross-selling opportunities.

The change also extends to its digital offering. This will draw in a total operating expenditure cost of £40mn over the next two years. This investment is to be managed “within existing underlying operating margin guidance of mid-20s with a view to returning to upper-20s operating margins of 27-30 per cent from 2024 onwards”.

Consensus estimates for assets under management were 15 per cent adrift of the year-end figures, while shares in Rathbones trade at a 29 per cent discount to analysts' consensus target price. Buy.

Last IC view: Buy, 2,050p, 12 Jan 2022