Quilter's housekeeping measures lead to higher profits

Quilter (QLT) wasn’t exactly an outlier on the wealth management front in 2023, but a 7 per cent increase in assets under management (AuM) to £107bn is at odds with the experience of some industry peers. The outcome reflects improved support from capital markets towards the year-end, combined with a positive, albeit modest, contribution from net flows – equivalent to 1 per cent of opening AuM.

Total net revenue increased by 3 per cent to £625mn, helped along by interest from corporate cash balances – interest rate hikes have had some positive impacts across the industry. An otherwise straitened environment meant that management has focused on paring back costs. And it has been successful in this regard despite persistent inflation. Consequently, the operating margin increased by five percentage points to 27 per cent, a reflection of cost savings under the group’s phase one simplification plan. That amounted to £45mn last year and management is targeting an additional £50mn under phase two by the end of 2025.

The group is also looking sturdier in terms of liquidity. Quilter’s Solvency II ratio improved markedly, rising to 271 per cent from 230 per cent last time around, aided by a reduction in risk margin resulting from changes in the Prudential Regulation Authority’s capital rules.

Quilter’s housekeeping is already having an impact on profitability, but the discount to the consensus target price isn’t wide enough to get us on board despite an implied forward dividend yield of c5 per cent. News that it is commencing a review of the way it has historically provided ongoing advice to clients, amid a sector-wide probe by the Financial Conduct Authority, adds to the uncertainty. Hold.

Last IC View: Hold, 118p, 10 Aug 2022