On Wednesday, BofA Securities revised its stance on Schroders Plc (LON:SDR:LN) (OTC: SHNWF), upgrading the stock from Underperform to Neutral. The firm has also adjusted the price target to GBP330.00, down from the previous GBP350.00. This change follows a significant drop in the company's share price, which plummeted by 14% after the third-quarter 2024 results missed expectations.
The reassessment by BofA Securities comes after Schroders' stock hit a decade low due to the market's reaction to the Q3 results. The firm's analysis indicates that the recent sell-off has surpassed the anticipated earnings per share (EPS) reductions for 2025-26, which were estimated at 7-8%. These reductions were attributed to a reevaluation of market conditions, lower assets under management (AUM) from mandate losses, and increased margin pressure.
BofA Securities notes that Schroders' shares are currently trading at a price-to-earnings (PE) ratio of 10.5 times the revised 2025 estimates, which represents a five-year low valuation. The stock is also trading at approximately a 10% discount to the UK sector average, despite traditionally commanding a premium. The firm's fair value estimate for Schroders is around 11 times earnings.
The firm acknowledges that Schroders appears to be in a better position than traditional UK peers due to its exposure to growing segments such as alternatives and wealth management, which make up 28% of its AUM. BofA Securities also points to the upcoming strategic update from Schroders' new CEO, which is expected to be presented at the full-year results on March 6, 2025. The update is anticipated to provide further insight into the company's strategic direction and potential for recovery.
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