viewBrooks Macdonald Group plc

Brooks Macdonald looking ahead with confidence

The group offers investment services to private high-net-worth individuals, pension funds, institutions and trusts and provides financial planning.

Individuals now face no new final salary schemes and the government has been clear people have to look after themselves in retirement

Despite uncertainties surrounding Brexit, wealth manager Brooks Macdonald Group plc (LON:BRK) was upbeat on the business's growth potential in its recent preliminary results.

Benefits of a major front and back office IT upgrade will now not be seen in the current year  (to end June, 2017) but be pushed back due to a delay in the installation, noted one City analyst, while the firm also has to deal with weak investor sentiment due to current economic uncertainty.

Nevertheless, looking ahead, the group, which joined AIM in 2005,  believes the "strength" of its investment proposition will enable it "to deliver good risk-adjusted returns for our clients".

The group offers investment services to private high-net-worth individuals, pension funds, institutions and trusts and provides financial planning.

Changes afoot in the sector

Major changes have been occurring in wealth management over the past two years.

The retail distribution review (RDR) recent pension reforms and EU edicts contained in MIFID II, have changed, or will change, the face of the long term savings industry.

The RDR has had by far the biggest impact thus far but some more subtle changes in behaviour are aiding the likes of Brooks.

Advisers who once managed client funds are now looking at specialists to do that for them.

Brooks Macdonald's deputy chief executive Andrew Shepherd explained earlier this year to Proactive: "The adviser finds the most suitable investment solution for the client and then they pass it to us and say, ‘this is what’s right for the client, now you manage it to those objectives’."

Brooks has relationships with 775 advisers, but is targeting a wider grouping of around 2,100 out of a total population of 14,000.

Individuals now face no new final salary schemes and the government has been clear people have to look after themselves in retirement, so the role of advisor becomes very important.

“So then it is a case of which type of advisers are going to win the war for this money. And actually I think all types, direct to client, one-stop-shops and professional advisers, will win – the opportunity is so big," said Shepherd.

As well as doing well on home turf, the company is starting to enjoy its first successes overseas.

It is targeting markets that are likely to see reforms similar to RDR; so South Africa, Singapore and Dubai are top of the list.

Brooks also has property based around a firm it bought in 2010 called Braemar. As at June 30 this year, Braemar's property assets stood at £1.10bn compared to £1.14bn at the same time last year.

Changes afoot in the boardroom, too

Current chief executive and founder Chris Macdonald will step down from his position in April next year.

He'll remain with the firm though, and take up the role of deputy chairman, with  the long-term plan for him to succeed Chris knight as Brooks' chairman.

To fill his void, the company is bringing on board HSBC luminary Caroline Connellan as its new chief executive.

Connellan has moer than 20 years' experience in financial services, most recently as the head of UK Premier and Wealth at HSBC where she led the transformation of the wealth business.

A 39% increase in pre-tax profit

Funds under management (FUM) were up 7.2% as at 30 September standing at £8.92bn compared to £8.3bnbn at the end of June - outperforming the market measured by the WMA Balanced index, which increased by 5.2% over the three month period.

Meanwhile, pre-tax profit for the 12 months to 30 June rose an impressive 39% to £15.9mln, on revenues - which were up 5% - of £81.4mln. Earnings per share gained 38% to 94.41p.

The board proposed a final dividend of 23p - 12% higher than last year's figure of 20.5p.

Chief executive Chris Macdonald added: ""We have made a good start to the new financial year, with further organic growth in discretionary FUM and look forward with confidence."

Consistent growth against peers

Shore Capital said Brooks has consistently exhibited superior organic asset under management growth compared to its larger listed peers, though its preliminary results were slight below the broker’s expectations.

Those peers are notably Rathbones (LON:RAT), which the broker rates 'buy' at 1,830p (current price: 1,760p) and Brewin Dolphin (LON:BRW), which the house also rates 'buy' at 281p (currently 264.9p).

"... we think the UK onshore business is an absolute gem, its strong relationships with the intermediary (IFA) sector being a key strength," said analyst Paul McGinnis.

"While we think this UK onshore business would be much coveted, today’s statement makes it clear that the company remains firmly committed to remaining independent and will look for acquisition opportunities in a consolidating market," he added.

It repeated a 'hold' on the shares.

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