The Alliance Trust Savings purchase of Brewin Dolphin’s execution-only stockbroking business for £14m raises questions of whether investors should hold the shares, according to analysts at JP Morgan.
The purchase of Stocktrade increases the number of customers at ATS from 48,000 to 105,000, and its assets under administration from £4.6bn to £11.5bn.
An analyst note from JP Morgan said this would “transform” the profitability of ATS, which is a wholly-owned subsidiary of Alliance Trust.
It said: “The acquisition is bound to lead to further debate on whether Alliance Trust should keep its subsidiaries, but we believe that ATS is potentially a very valuable asset that it might be premature to sell.
“This acquisition implies that the board is in no rush to sell the business anyway.”
Management at the investment trust have said they expect the deal to allow the company to move into profit by 2016.
Alliance Trust chief executive Katherine Garrett-Cox has said she wants to increase assets under administration to £45bn by 2020.
Patrick Mill, managing director of Alliance Trust Savings, said: “The priority now is to focus on driving growth organically and profitably through the three channels: direct, intermediaries and strategic partnerships.”
Analyst view
An analyst note from Numis said: “We believe the deal is positive for ATS as it has previously been sub-scale, with a market share of around 2.2 per cent prior to the deal.
“In addition we believe there will be significant synergies available, improving the profitability of the combined entity.
“ATS has been consistently loss-making, and was a key focus of investor concerns voiced prior to the recent AGM. As a result the expected move to meaningful profitability in 2016 would be welcomed.”
