Cube Midcap Report (29 Nov 2019) – Decent stuff from the dolphin #BRW
There are no news announcements of interest today, so I’m going to scroll back for a look at Brewin Dolphin (BRW).
By the way, you may have noticed that the font size has changed. What do you think? Are there any other changes you’d like to see us implement?
Brewin Dolphin (BRW)
- Share price: 346.2p (-0.4%)
- Market cap: £1,050 million
The market liked these results on Wednesday.
As many of you will know, Brewin Dolphin is a major wealth manager which has been around for a long time – over two hundred years.
It has been listed for 25 years. Despite some major ups and downs, the share price now is not very far off its all time highs. Speaking very broadly, its revenues and profits have tended to increase over the years, and ROCE has generally been attractive.
Highlights from the results:
- An increase in funds to £45 billion, up 5.1%.
- Discretionary funds enjoyed growth from net inflows of 3.7%. There was a nice combo of healthy flows and positive investment performance, additionally boosted by some acquisition activity.
- Adjusted profit declined by 3.2%, which was in line with expectations. Non-adjusted profit declined by 8.6%.
- Brewin attributed higher costs to “planned spending on growth initiatives and infrastructure projects“.
We continue to invest in our business to support future long-term growth. We have completed and integrated a number of strategic acquisitions and the replacement of our core custody and settlement system is on track. These initiatives are laying the foundations for long-term growth and will ensure that we are well placed to capture future market opportunities.”
Final Dividend was kept flat at 12p. The interim dividend had already been maintained at a flat level. The payout for the year was 16.4p. So Brewin Dolphin is yielding a chunky 4.7%.
In a multi-pronged approach, Brewin is rolling out both a simplified service called WealthPilot, and has already rolled out a service for clients with complex needs, called 1762 from Brewin Dolphin.
Additionally, there is a Brewin Portfolio Service (BPS), “for those with straightforward requirements”. Brewin says that BPS is “an adjacent proposition to Wealthpilot”.
BPS is a “non-advised online investment service”, offering ready-made portfolios. Let’s call it a robo-advisor, for simplicity. You only need £2,000 to get started.
So the hierarchy looks something like this:
- BPS for those who don’t need human advice and including those who only have very small sums to invest.
- WealthPilot, a wealth planning service for the mass market and people with simple needs.
- The core wealth management service
- 1762, offering tailored advice to people with complex needs. See case studies. We could call this a form of private banking.
As you can see, Brewin wants to take market share in the entire range of wealth management services, from the very basic to the most complex.
All of the above fall under the category of “Direct Clients“.
Under “Indirect Clients“, Brewin also provides services through IFAs. This service continues to be developed. For the last two years, Brewin has also offered a service targeted at lawyers, accountants and their clients.
Considering all of the strategic work that has taken place, I’m willing to “look past” this year’s reduction in profitability. Brewin is playing the long game, and sometimes that means sacrificing profit growth in the short-term.
We might also take into account the argument that it’s been a difficult year in the funds and wealth management industry. Investors are nervous and less than enthused. For example, equity funds saw record quarterly outflows in Q3. Nervousness around Brexit and the Woodford debacle don’t provide the mood music which the investment industry wants to hear. In the commentary for these results, Brewin references the “subdued client activity seen across the industry”. Even so, its own financial performance was ok.
Would I want to own shares in it? While I do have a favourable view of the company, the shares look fairly valued at a forward P/E multiple of c. 15.5x. So I’ll be on the sidelines for the time being.
That’s it for this report – thanks for reading!