Schroders PLC (LON:SDR) delivered first half results that compared favourably to consensus while the Financial Conduct Authority’s asset management review was less harsh than expected, analysts at Macquarie said as they upgraded the stock.
Macquarie raised its rating to ‘neutral’ from ‘underperform’ and lifted its target price to 3,140p from 2,710p, citing the group’s better-than-expected interim results and action taken on regulatory issues.
The analysts also raised its 2017 fiscal year estimates for earnings per share (EPS) by 3% and assets under management by 1%.
Less benign outcome from the FCA's review
In the first half, the group reported a 20% increase in pre-tax profit to £342mln compared to the same period a year ago and saw its asset reach a record £418bn despite its inflows falling following the loss of a US$6.3bn mandate from US life insurer Prudential Financial.
Macquarie said its main concern on the investment thesis for Schroders was a less benign outcome from the FCA’s asset management review.
“The final FCA report from the review did not implement a rigid all-in fee structure and is consulting on transparency and the approach to implementing a sunset clause on pre-RDR (retail distribution review) commission share classes which could have been more significant for the UK retail business.”
Macquaire added that Schroders has taken action on the most immediate regulatory issues, including the research cost burden from MiFID II - an EU law aimed at improving competition and consumer protection – and the impact of the FCA’s decision to ensure obscure "box profits" are passed back to a fund's investors rather than asset managers themselves.
Shares fell 1.69% to 3,319p in morning trading.