Rathbones has been hailed by brokers as “taking full advantage” of the consolidation opportunities in its sector as it snapped up two private wealth businesses.
Last Tuesday, Rathbone Brothers announced it had bought Jupiter’s £2.1bn private client wealth business, as well as part of Tilney’s private wealth business in London.
Not content with settling for just the two acquisitions, Rathbones last week embarked on a share placing to raise another £24.4m, which chief executive Philip Howell said would be used in order to finance further buys.
Stuart Duncan, an analyst at Peel Hunt, said the deals “look to have been completed at attractive prices, make good sense culturally and strategically, and enhance the investment case”.
Rathbones paid a combined £57.4m for the two businesses, funded out of existing cash, but will only pay the full amount if all of the Jupiter and Tilney assets are integrated into its business. If that happens, Rathbones will increase the firm’s funds under management by 12.7 per cent to £24.8bn.
Mr Duncan said the price paid by Rathbones for the Jupiter private client arm was equivalent to 8.5 times the profit generated by the business in 2013.
However, as Rathbones is only bringing across 28 investment professionals from Jupiter and not any administrative staff, cost cutting should help boost Rathbones’ earnings from the deal.
Mr Duncan reiterated his ‘buy’ recommendation on Rathbones and suggested a target price of £20 per share.
Brokers Robin Savage and Arun Melmane at Canaccord Genuity raised their recommendation on Rathbones from a ‘hold’ to a ‘buy’ as a result of the deals.
They said the addition of the Jupiter and Tilney businesses should add 3.8 per cent to Rathbones’ earnings per share in the 2015 financial year, although they expected the integration costs and the impact of the share placing to reduce its 2014 earnings by 1.8 per cent.
The overall boost to Rathbones’ assets and the increase in profits meant Canaccord raised its target price on the stock from £18 per share to £19.50, suggesting Rathbones may reach that target by April 2015.
Within a day of the acquisitions, however, the firm’s share price was already close to reaching that target, having risen significantly since the deals were announced.
The Canaccord note also looked ahead to Rathbones’ update on first quarter business and predicted it would report a 15 per cent year-on-year increase in funds under management.
