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In wake of Brewin deal company looks well set whether it attracts takeover interest or not
Thursday 07 Apr 2022 Author: Mark Gardner

Royal Bank of Canada’s recent £1.6 billion bid for rival asset manager Brewin Dolphin (BRW) at a 62% share price premium, has highlighted what a scarce and valuable asset Rathbones (RAT) is on the stock market.

And despite a rally on a read-across from the Brewin news, the shares are currently trading on just 12.3 times forecast earnings and offer a 4.2% dividend yield.

Investors should buy as the current valuation doesn’t reflect its potential as a bid target and, importantly given it always risky to purchase a stock purely in the expectation of a takeover offer, the inherent strengths of the business.

Rathbones is a full service wealth management company providing discretionary wealth management and asset management services in the UK.

The company is ideally positioned to harness the structural growth in the UK wealth management market, which according to research by Berenberg will accelerate from 9% to 12% per year over the next three years. The group also has a fast growing mutual funds business.

Rathbones has a strong proposition that is likely to be attractive to potential clients. It operates across the full spectrum of services, from discretionary management, where a professional manages a tailored portfolio of assets on an investor’s behalf, to multi-asset solutions, investing in everything from stocks to bonds to property and more, to single strategy funds.


The strength of the product offering is reflected in the recent growth in both assets under management and fund inflows.

At its pre-close update in January, the group revealed that overall assets grew strongly over both the quarter and the year.

Assets under management stood at £68.2 billion at the end of December 2021, an overall increase of 23% year-on-year.

The investment management division witnessed a 12% increase in assets to £50.3 billion, while the funds arm experienced a 33% increase to £13 billion.

Royal Bank of Canada’s surprise offer for Brewin Dolphin and the wider dealmaking trend within the UK wealth management sector means investors are turning their attention to other potential transactions.

Rathbones is arguably a more attractive business than Brewin Dolphin. This is because 19% of Rathbones’ assets under management and pre-tax profit is generated from its funds business, which generates higher margins than investment management.

On a pre-synergy basis Royal Bank of Scotland is paying 21 times current year’s earnings for Brewin Dolphin. Rathbones currently trades at a significant discount to this and a bid at a similar multiple would imply a share price of more than £30 a share.

Reports of interest from Natwest (NWG) in Tilney Smith & Williamson offer further evidence of a wealth management sector in a consolidation phase.

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