Hits: 7

13 May 2020

Brewin Dolphin  – H1 Results

Share Price 269p

Mkt Cap £815m

Conflict Disclosure: No Holding

 

  • Results AUM is down 8% over 6 months and 2.4% over 12 months to £41.4bn. Year on year revenue increased 8.3% to £175.8m. PBT was up 2.5% to £36.5m, EPS up 4% to 9.5p and an interim dividend is declared at 4.4p, flat on last year. Cash is £144m. Outlook refers to uncertainty but £6-£8m of cost savings are announced for FY 2020. It isn’t clear whether these cost savings will persist beyond 2020. 
  • Estimates FY estimates anticipate £64m pre tax for the year to September. With £36m delivered in H1 this is conservative despite the uncertain outlook. 
  • Valuation PE 15.7, yield 4.4%. Brooks trades at 13.2X and Rathbone 15.5X. 
  • Conclusion These results include 5 months of the Irish business acquired from Investec and the net inflows are impressive, as are the cost savings. Chart below of flows. The shares are off their lows but haven’t been this price since 2016. This could be a useful market opportunity.

17 April 2019

Brewin Dolphin – Trading Update

Share Price 212p

Mkt Cap £644m

Conflict Disclosure: No Holding

 

  • Update Q2 net discretionary inflows of 3.8% annualised combined with market falls resulted in total AUM decreasing 14.6% to £41.4bn. Outlook refers to heightened uncertainty, but confident in responding to increased demand for financial advice.

 

  • Estimates. At March 19 Brewin AUM was £42.4bn vs £41.4bn today while estimates currently anticipate a 10% revenue increase. Market related downwards adjustment can be expected.

 

  • Valuation EV/AUM is now 1.4% following a 41% decline in the share price since February

 

  • Conclusion I don’t recall valuations as low as EV/AUM of 1.4%. And the company is experiencing net discretionary inflows. A gift for those that like cheap assets. Such as private equity.

27 November 2019

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Brewin Dolphin Plc – FY Results 

Share Price 341p

Mkt Cap £1,036m

Conflict Disclosure: No Holding

  • Results Discretionary net inflows of 3.7% over the year is below historic targets and many peers. Revenue grew 3.1% to £339m while operating profits adjusted fell 4.2% to £73.4m. Adjusted PBT was down 3.2% to £75mand adjusted EPS down 5.5% to 20.5p. Outlook refers to laying the foundations for long term growth.
  • Estimates Results appear in line with expectations and I am not seeing any reason to change from the existing 17% increase for Sept 20 driven by the acquisition of the Irish business.
  • Valuation PER 17X, Yield 4.8%.
  • Conclusion The business is ex growth and so dependent on acquisitions for future growth. Structurally wealth managers are hard to grow while pricing pressures increase and regulatory burdens increase. Last year capex was £15m (£8.2m in 2018) which compares to depreciation and amortisation of £3.9m. The assets in this market remain to expensive to earn a high ROI and in this period of investment it is hard to see a persuasive case to own the shares.

23 August 2019

Private Client Consolidation 

  • Consolidation Will plentiful cheap credit, a weak pound and structural change the conditions are set for some overseas predators to help themselves.  The latest declaration is the potential merger of Smith & Williamson and Tilney which could bring a significant challenger to Rathbone and Brewin with £45bn AUM. I had a look at the accounts of Tilney yesterday.  They make 38% EBITDA margins while having £380m debt on the balance sheet and negative net tangible assets, the hallmarks of private equity while their average client portfolio is close to a third of the average client size of Brewin and Rathbone.  See stats below:
  Tilney Smith & Williamson Brewin Rathbone IM
Year End Dec 18 April 18 Sept 18 Dec 18
AUM (m) 23,000 20,100 42,800 38,500
Clients (k) 100   62 60
         
Revenue £m 228.9 266.7 329 275.3
Adjusted EBITDA £m 87.4 49.41 83.1 78.8
Costs £m 177.1 218.0 252.3 196.5
Staff Costs £m 88.1 157.5 174.8 104.2
         
Net inflows p.a 2.50% 2.80% 3.70% 3.40%
Average head count 1133 1722 1763 1296
         
Revenue yield on avg. AUM 97.4 132.6 79.3 76.3
EBITDA margin 38.2% 18.5% 25.3% 28.6%
         
Net debt 345.1 280m NAV 274m NAV 464.1m NAV
         
Staff cost/head (£) 77,700 91,480 99,149 80,401
AUM/head (£m) 20.3 11.67 24.28 29.71
AUM/Client (k) 230   690 642
Client/Head 88   35.2 46.3
Staff cost/other costs (%) 49.7% 72.3% 69.3% 53.0%
         
Offices 55 12 30 15
  • Valuations  The price of the Smith & Williamson transaction will be interesting. Brewin trades on a PER of 15.1 and yields 5.4% while Rathbone trades on a PER of 16.4 and yields 3%/ EV/AUM is 1.9% for Brewin and 2.6% for Rathbone.
  • Conclusion An aggressive private equity beast prowling the mature wealth management world may be uncomfortable.  It is possible it may force Brewin and Rathbone to acquire or be acquired. With Brewin shares down 18% over the last 12 months and Rathbones down 14% it certainly makes the shares look attractive.

19 August 2019

Wealth Manager Consolidation

  • Tilney are in talks to acquire Smith & Williamson. Tilney has £24bn and Smith & Williamson £21bn AUM. This would make it a large competitor to Brewin and Rathbone who have £44bn and £49bn AUM each. Potentially this could introduce more competition for  these two companies that produce reliable good margins. The Sunday Times referred to them as “mature” businesses.
  • Valuation  The EV/AUM is on the vertical axis and the number of bps of AUM that drops into profit is on the horizontal access below.
  • Conclusion The pressure is on Rathbone. Costs are increasing under a new CEO who is yet to produce a new strategy while the valuation relative to it strong profitability is full. We get a strategy update in October.

25 July 2019

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Brewin Dolphin – Trading Update

Share Price 315p

Mkt Cap £954m

Conflict Disclosure: No Holding

  • Update Net inflows of £0.3bn equates to 2.8% over the quarter which contrasts with Rathbone and Brooks both reporting outflows yesterday. Total AUM increased 4% to £44.1bn in Q3. Both MPS and Financial Planning revenues grew above 20% while the acquisitions of Investec Ireland and Epoch wealth are on track to complete as expected. Outlook is confident in the model.
  • Estimates Forecasts anticipate 2.5% revenue growth to September 2019 which compares to AUM up 4.2% from June 2018. Looks conservative
  • Valuation PER 15.7, Yield 5.2%. EV/AUM 1.9%
  • Conclusion Rathbone has £49.2bn AUM and a market cap of £1.24bn while Brewin has £44.1bn AUM and a market cap of £954m. Brewin is growing faster but Rathbones 27% operating margin compares to Brewins’22%. I find myself thinking Brewin’s growth from new areas alongside the recent acquisitions is likely to make this a strong performer over coming years with a useful yield.

10 May 2019

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Brewin Dolphin – Acquisition & IMS

Share Price 321p

Mkt Cap £909m

Disclosure: No holding

  • Update Acquisition of Investec’s Republic of Ireland business for Euro 44m which is expected to deliver Euro 4.5m of profit post cost synergies. Which doesn’t look cheap. The AUM are said to have grown Euro 0.8bn over the last 3 years representing an annual growth rate of 8%.  This would imply in the region of Euro 4bn of AUM. Brewin is also raising £60m via a share placing at 305p to ensure a strong balance sheet and provide further firepower for acquisitions.
  • IMS Half year figures show revenue up 0.3% to £162.3m which with a 9.3% increase in fixed staff costs has contributed to a decline in PBT adjusted of 8.2% to £35.6m.  EPS is down 8.3% to 9.9p. AUM declined over the quarter from £42.8bn to £39.7bn although the company reports net discretionary inflows over the half year of £0.8bn. Subtracting the £0.4bn inflows in Q1 would imply £0.4bn net inflow in Q2.  Which implies either the company has lost a lot of non discretionary inflows in Q2 or their market performance was negative.
  • Estimates The transaction is expected to be earnings enhancing in its first full year. While the placing will be dilutive. Estimates look for flat revenues this year and 5% EPS growth.
  • Valuation PER 15, yield 5.2%
  • Conclusion The transaction isn’t cheap at 10X expected post synergy profit. And with £186m of cash on the balance sheet last September combined with an 86% dividend payout ratio the messaging from that would appear to be at odds with the need to do a £60m placing at a discount. Underwhelming

15 April 2019

Brewin Dolphin – Talks 

Share Price 330p

Mkt Cap £937m

Disclosure No holding

  • Talks Following the Sunday Times reports over the week end Brewin confirms it is in exclusive discussions to acquire Investec Wealth’s Ireland business.  Rathbone is also reported to be interested in buying the business but it appears they have been pipped by Brewin. The price is alleged to be Euro 60m (£52m).
  • Estimates No AUM number is quoted. If we made the heroic assumption that it equates to 10X EBIT given Brewin is paying cash this could potentially be 6-7% earnings enhancing.
  • Valuation Current PER 15.4 Yield 5.0%. EV/AUM 1.8%
  • Conclusion  The EV/AUM for Brewin is very low as the cash has been building up in the balance sheet. To use the cash for acquisitions would be usefully enhancing when things are quiet.  The sector has been dull over the last 12 months as flows have reduced (see chart below). Brewin shares are down 7% over 12 months.  With a 5% yield they are starting to look cheap.