Integration With IW&I Will Unlock Significant Synergies By 2025

Key Takeaways

• Integration with Investec and Saunderson House aims to boost synergies, reduce outflows, and enhance revenue through increased funds under management.
  
• Investments in technology and cloud migration focus on operational efficiency and client service, supporting margin expansion and earnings growth.
  
• Elevated outflows, integration costs, and competitive pressures may suppress net margins and delay profitability improvements despite synergy goals and market challenges.

Catalysts

Provides individual wealth management, asset management, and related services for private clients, charities, trustees, and professional partners in the United Kingdom, Channel Island, and internationally.

• Integration with Investec Wealth & Investment (IW&I) is expected to unlock significant synergies, with £30.1 million already realized and a target of £60 million by the second half of 2025, enhancing operating margins and profitability.
  
• Completion of Saunderson House integration and the expected reduction in IW&I outflows will bolster net inflows, potentially increasing funds under management and driving revenue growth.
  
• The increase in financial planning capabilities through the combination with IW&I positions Rathbones to capture market opportunities driven by increased demand for advice, directly impacting revenue growth and client retention.
  
• Continued investment in technology and infrastructure, including migration to the cloud and AI implementations, aims to improve operational efficiencies and client service, which can support margin expansion and increase earnings.
  
• The strong capital position post-integration provides flexibility for future investments or shareholder returns, potentially supporting earnings growth through strategic acquisitions or buybacks.

Rathbones Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Rathbones Group's revenue will decrease by 0.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.5% today to 18.4% in 3 years time.
• Analysts expect earnings to reach £188.2 million (and earnings per share of £1.85) by about April 2028, up from £65.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.0x on those 2028 earnings, down from 23.7x today. This future PE is greater than the current PE for the GB Capital Markets industry at 10.8x.
• Analysts expect the number of shares outstanding to decline by 0.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.56%, as per the Simply Wall St company report.

Rathbones Group Future Earnings Per Share Growth

Risks

• Elevated gross outflows due to high interest rates and living costs could negatively impact net flows and future revenues.
  
• Ongoing costs related to the integration of IW&I, including higher nonunderlying costs and technology expenses, may suppress net margins until full synergy targets are realized.
  
• The increase in FSCS levies and NIC costs, coupled with general inflation, may adversely affect operating costs and net margins in the short term.
  
• The competitive pressure in the multi-asset and single-strategy funds market may hinder revenue growth in these segments, impacting overall earnings.
  
• Potential risks in fully realizing integration synergies, particularly if the client migration process encounters issues, could delay improvements in operating margins and profitability targets.

Valuation

• The analysts have a consensus price target of £20.816 for Rathbones Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £22.25, and the most bearish reporting a price target of just £18.3.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £1.0 billion, earnings will come to £188.2 million, and it would be trading on a PE ratio of 14.0x, assuming you use a discount rate of 7.6%.
• Given the current share price of £14.98, the analyst price target of £20.82 is 28.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.