Asset management is a scale game: so long as margins hold, a bigger pie means larger fees. For sector luminary Schroders (SDR), this remains the longer-term trend, even if the alignment of new client money and positive asset performance sometimes proves elusive.
This year started with markets freshly battered and funds under management in decline. In the six months to June, the risk-off environment in equities caused a further £1.2bn in net outflows, meaning Schroders’ average assets were 2 per cent down on the first half of 2018. Compounded by investors’ shift to lower margin mandates and a largely static cost base, profits before tax and exceptional items dropped 14 per cent to £340m.
Nonetheless, a rise in markets at the end of the period, and the first trickles of a monster mandate from Lloyds (LLOY), meant funds under management climbed 9 per cent to a record £444bn. Though client sentiment may remain gloomy, this is clearly a better base for income. “July was a fantastic month for fees,” chief financial officer Richard Keers told us.
Just how fantastic the Lloyds mandate will prove in part depends on its impact on the net operating revenue margin. Investors are unlikely to know by the end of this year, when the bulk of the initial £45bn asset pile is set to arrive, and Mr Keers would not be drawn on the scale of margin erosion from 2020 onwards.
Analysts at Numis expect earnings of 196p a share this year, rising to 219p in 2020.
| SCHRODERS (SDR) | ||||
| ORD PRICE: | 2,974p | MARKET VALUE: | £ 8.41bn | |
| TOUCH: | 2,972-2,975p | 12-MONTH HIGH: | 3,226p | LOW: 2,289p |
| DIVIDEND YIELD: | 3.8% | PE RATIO: | 18 | |
| NET ASSET VALUE: | 1,265p | NET CASH: | £2.65bn | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 1.34 | 371 | 106 | 35.0 |
| 2019 | 1.22 | 319 | 92.4 | 35.0 |
| % change | -8 | -14 | -13 | - |
| Ex-div: | 22 Aug | |||
| Payment: | 26 Sep |
