Brooks Macdonald powers through

Few investors would have placed much faith at this point last year in the idea that Brooks Macdonald (BRK), along with many other asset managers, would enjoy a year of asset inflows following the turbulence sparked by the 'mini' Budget and the subsequent rise in interest rates. Whether this reflects an element of pent-up demand is open to debate – investors have been just as likely to pay down debt and sit on cash to earn higher interest as to come back to the market.

Nevertheless, fund inflows totalling a net 5.2 per cent for year, with positive numbers each quarter, was a notable achievement. Funds-under-management finished the year up 7.5 per cent at £16.8bn.  

The core of this successful model seems to be Brook’s relationship with IFAs and their ability to source new clients. Chief executive Andrew Shepherd said he would take a profit margin of 24.5 per cent (28 per cent last time) if this was the worst of the cycle. He added that Brook’s had brought in a regular flow of clients through IFA connections as individual firms either sell up, or no longer wish to do the account management or administration themselves. This was reflected in the performance of its UK investment management business, where sales were 2.5 per cent higher at £103mn, though this was offset by lower fees and transaction costs – investors sitting on their hands, in other words. This is why the company was more cautious about the year ahead, noting that some headwinds had already appeared.

Equity Development analysts rate the shares at 15 times earnings for 2024. Earnings upgrades after a solid year have pushed the price to earnings ratio closer to its peers but, with a lack of momentum now expected in the first quarter, the company now needs markets to recover in a way that matches its operational prowess to drive the share price higher. Hold. 

. Hold.    

Last IC view: Buy, 1,900p, 27 Apr 2023