Rathbones assets rebound despite ‘muted’ inflows

Unit trust business takes in less than half the level of inflows than the year before

Rathbones

Rathbones assets have rebounded sharply from their December lows but flows into its businesses have remained stunted as investor appetite remains weak.

Recovering markets in the first quarter helped total assets swell by £2.9bn and bumped revenues up by 13.1% to £85.3m.

The FTSE 250 investment manager reported a 7.7% rise in funds under management in the first three months to 31 March 2019, climbing to £47.5bn.

Total net inflows into the investment business stood at £130m for the quarter though £121m of this came from acquired new business.

Overall net organic growth in the investment arm was 1.4%, down from 2.4% in the same period last year, which Rathbones said reflected “ongoing weak investor sentiment” and the “anticipated muted growth” as it completes its integration with Scottish stockbroker Speirs & Jeffrey.

“As a result, net organic growth in the first quarter represents an annualised growth rate of 0.1% compared with 2% in the first three months of 2018,” it said.

Flows were also sluggish on the unit trust side, which ended the period with net flows of £59m, two fifths of the flows the funds business attracted in the first quarter of 2018. Assets under management closed out the quarter at £6.1bn.

Chief executive Philip Howell (pictured) said in the first quarter update he expects weak investor sentiment to continue in the short-term. But he added that the group’s integration of Speirs & Jeffrey was proceeding well with Rathbones making further progress on transferring clients to its platform.

“Accordingly, we expect the operational performance targets in respect of the initial contingent consideration to be met very shortly and ahead of our original schedule.”

Peel Hunt analyst Stuart Duncan said the figures were “a positive start to the year” for Rathbones but maintained his forecasts for the business due to the “fragile” investor sentiment.

“Apart from the recent management changes, there is little change in the overall direction of the business, although the statement does sound a note of caution as sentiment remains fragile. The year has got off to a decent start, but for now we maintain our existing forecasts for PBT/EPS of £91.4m/126.5p.”

But Duncan believes the FTSE 250 firm’s “premium valuation” of 16.3x on an enterprise value to net operating profit after tax (EV/NOPAT) basis, against the 13x sector average, continues to be justified by the firm’s longer-term track record.

And there is scope for the investment manager’s shares to re-rate as acquisition benefits are realised, he added.

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