Berenberg reckons Schroders PLC (LON:SDR) is worth a punt after the asset manager confirmed it is in talks with Lloyds Banking Group PLC (LON:LLOY) regarding a possible wealth management tie-up.
Reports over the weekend suggested that the two companies were discussing a deal that would involve Lloyds merging its £13bn wealth management arm into a new joint venture with Schroders, with Lloyds owning 50.1% and Schroders the rest.
READ: Lloyds in talks with Schroders over possible JV
In a brief statement on Monday, Schroders confirmed the discussions, adding that the two are looking to work “closely together in parts of the wealth sector”.
“Press reports suggest the strategic partnership centres on two components: (1) Lloyds awarding a £109bn insurance mandate to Schroders; and (2) the two groups agreeing to form a joint venture in the UK wealth management space,” said Berenberg analyst Chris Turner in a note to clients.
“We believe both aspects of the deal bring strategic benefits to Schroders. At the very least, it demonstrates a corporate dynamism not previously associated with Schroders.”
Turner believes the insurance mandate will benefit earnings and address previous concerns around Schroders’ expense base, one of the principal reasons why he downgraded the stock earlier this year.
READ: Schroders reports higher profits but AUM miss forecasts
He adds that the tie-up, should it be successful, could be repeated in other territories with other banks.
Alongside his upgrade to ‘buy’ (from ‘hold’), Turner has hiked his price target for Schroders to 3,525p (3,420p), although there is “further potential upside”, should a deal be agreed.
As for next week’s third-quarter update, the analyst expects an “uneventful” statement, with positive FX moves to offset very slightly negative flows during the period. He is guiding for “broadly flat” assets under management of around £439bn.
Schroders’ shares climbed 1.7% to 3,026p.