Lowly rated Brooks Macdonald offers 5% dividend yield

Life had been slightly easier for Brooks Macdonald (BRK) during most of the recent turmoil for the asset management sector. The specialist advisory and asset management company's tight relationship with independent financial advisers and savings generated by the growing efficiency of its IT platforms meant it had swerved the worst of the industry’s outflows over the previous 18 months.

However, it was unlikely that this performance would defy gravity forever in the face of higher interest rates and these interim results represented something of a reality check, with analysts pencilling in marginal net outflows for the year ahead on the back of them.

Net outflows in the period were £0.2bn, with investment returns offsetting this to deliver funds under management (FuM) for the half that were 4.3 per cent higher at £17.6bn. While its core operations saw a return to margin expansion, with operating margins widening to 26.9 per cent, the international business endured a difficult half and management booked a provisional £11.6mn impairment charge while it puts the business under strategic review.

Andrew Shepherd told the Investors’ Chronicle that the performance had been solid under the circumstances: “The single most pivotal event this year will be the direction of interest rates in the second half. Investors are earning real returns on cash so a cut would return confidence in equities,” he said.

Peel Hunt puts the annualised price/earnings ratio at 11, well below the long-term sector average, with a growing dividend yield of 5 per cent. It also questions whether BRK could become a takeover target if the company does not break into the top five wealth managers. Buy.  

Last IC view: Hold, 1,875p, 14 Sep 2023