Schroders PLC (LSE:SDR) was one of the top risers on the FTSE 100 on Tuesday, helped by a UBS upgrade after the shares have underperformed so far this year.
The stock has fallen 9% in the year to date, the Swiss bank noted, underperforming the STOXX 600 by 16% and the listed EU asset managers by 11%.
"While we don’t envision any immediate catalysts for the shares, we think the risk-reward at these valuation levels is compelling," says analyst Michael Werner, pointing to a P/E ratio that has compressed to 10.5 times from 12.6,.
He also hailed improved fund flows over the past three to four months.
"Despite this, SDR's shares have considerably underperformed, resulting in a positively skewed risk-reward profile."
At current valuations, which Werner said are close to historical troughs, the market is essentially pricing in roughly 10% annual fund outflows as a percentage of assets under management, despite the more positive trend recently.
Moreover, the performance records for the company's funds on a three- and five-year basis "has been the best in our coverage", the analyst added, "which based on the historical correlation between fund performance and future flows, gives us confidence in the firm's flow outlook".
UBS's rating was listed to 'buy' from 'neutral', with a 12-month share price target unchanged at 430p.