Rathbone Brothers, the UK’s only all discretionary wealth manager, this morning announced it is in discussions with Lloyds Banking Group about the potential acquisition of some of the bank’s Wealth and International Division, principally the Bank of Scotland Portfolio Management Service.
Rathbones said talks are ongoing but a number of analysts commented that such a deal would likely be earnings accretive for the wealth manager.
Catherine Heath, analyst at Altium Securities, said she would expect an acquisition of such non core private client discretionary investment management activities to enhance earnings and, pending clarification on the potential purchase, today upgraded Rathbones’ price target to 950p per share.
Heath added that should an acquisition now not take place, she would expect Rathbones’ shares to come under pressure. Altium retained its Hold recommendation.
At Arden Partners, analysts Jeremy Grimes and Sarah Spikes were similarly upbeat. “Depending on the price, we believe that adding new assets will be a positive development as [Portfolio Wealth Management] is clearly a scale business,” they wrote in a morning note.
Arden has a Sell recommendation on Rathbones but this is based on valuation relative to peers Brewin Dolphin and Rensburg Sheppards—the analysts believe Rathbones is a high quality company and sees little or no chance of a dividend cut by management “as the company is well capitalised and aware of the importance its holders place on the dividend.”
This sentiment was echoed by Shore Capital, whose analyst Eamonn Flanagan commented that he rates management highly and expects it to safeguard shareholders' interests in structuring such a deal. Flanagan said that though Rathbones has not given an indication of the size of the potential acquisition, he imagines that it will be quite substantial and may possibly involve the need to raise capital. He pointed out, however, that Rathbones is well capitalised.
Rathbone investors opted to await further details before taking action; the shares had ticked up just half a penny or 0.01% to 945.5p by 9.30am. The news had more of an impact on Lloyds’ shares, which outperformed the broader sector to climb 0.9% to 93.9p, as this morning’s announcement was taken as a sign the part state-owned bank is actively moving to extricate itself from the UK Government’s asset protection scheme.
For this reason, Daniel Stewart analysts Justin Bates and Tom Mills believe a non-core asset sale to Rathbones has the potential to be at an attractive price. “However, we also note an article in today’s Scotsman, which reports that a team of ten investment portfolio managers has left [Bank of Scotland’s] private banking arm in Edinburgh to join Rensburg Sheppards, because they were believed to be unhappy with the plan to sell portfolios to Rathbones,” the analyst said. Daniel Stewart stuck with its Sell recommendation.
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