Rathbones toughs it out

Rathbones (RAT) is poised this year to be reshaped as a large, combined full-service financial services company after its agreed majority merger with Investec’s UK wealth arm. As with many other managers, rising interest rate income from cash holdings managed to offset the volatility of performance fee income. In Rathbone’s case, interest income was £23mn in the half, compared with £6mn the year before. This, combined with positive inflows, although lower than last year, meant that total funds under management were £1.6bn higher at £60.5bn, which under the circumstances was a solid performance in an otherwise lacklustre year for the asset management industry.

The offset from rising interest rates was significant enough to mitigate the worst of the declines in commission fees – related to transactions – which were more than £3mn lower at £23.7mn as investors reined back on investments. At the same time, fees from advisory took a hit from the performance of Saunderson House – Rathbones’s expensive pension services acquisition – where fees were £6.5mn lower at £10.5mn as the business is restructured.

The combination with Investec W&I means that the company will bring forward a portion of the final dividend and pay a second half-year dividend and a reduced final payout to maintain its payout ratios. Broker Numis forecasts a largely flat EPS for 2023 of 130p, giving a price/earnings ratio of 13, which is a now a clearer discount to its peers and puts it closer to value territory at a time when asset managers are out of fashion. The pressure is only on Rathbones to meet minimum forecasts as the year progresses. Speculative buy.

Last IC View: Hold, 2,080p, 1 Mar 2023