Goldman Sachs is out with its near-term forex outlook
Investing.com -- BofA Securities analysts have initiated coverage on Rathbones Group with a "buy" rating and a price objective of 2,250 GBp, representing a 35% upside from its current price of 1,662 GBp, citing undervaluation and improving fundamentals.
Rathbones trades at about 10 times its forecast 2026 earnings, a 19% discount to its five-year average, according to BofA Securities.
The stock’s current valuation reflects investor concerns over the integration of Investec (LON:INVP) Wealth & Investment U.K. (IW&I), which Rathbones acquired.
BofA analysts view these concerns as overstated, noting that the IW&I integration is almost complete, with around 99.7% of clients already migrated.
The IW&I acquisition has expanded Rathbones’ funds under management and administration (FUMA) by 67% to £104 billion as of Q1 2025.
This transformation positions Rathbones as one of the UK’s largest discretionary wealth managers.
BofA Securities forecasts net flows will recover in the third quarter of 2025, supported by strong European equity markets, falling interest rates, and capital reallocation from the U.S. to Europe.
Wealth management net flows are closely correlated with the EuroStoxx 50 index, which has gained 9% year-to-date and 2% in the second quarter.
Asset management flows similarly track global equity performance, with the MSCI World Index up 5% year-to-date and 8% in the second quarter.
BofA expects additional Bank of England rate cuts to 3.5% by year-end from the current 4.25%, further aiding inflows.
Operating margins are also improving. Rathbones reported a 25.4% operating margin in 2024, and management targets 30% by September 2026.
BofA forecasts a 28.4% margin in 2026, surpassing the consensus of 27.7%. Synergies from the IW&I deal are progressing ahead of schedule, with £30 million realized within the first year, half of the £60 million target.
Rathbones’ revenue remains resilient despite industry fee pressures, with wealth management contributing 91% of operating income in 2024.
The fee income revenue margin stood at 58.5 basis points. Asset management adds diversification, with £15.4 billion FUMA at Q1 2025, despite modest margin compression due to industry trends.
Peer comparisons show Rathbones trading below domestic competitors, which average a forward P/E of 12x.
BofA anticipates Rathbones will rerate towards peer valuations as integration completes and net flows strengthen.
Rathbones also boasts a strong M&A track record, enhancing confidence in management’s ability to execute further growth, including potential European expansion and technology investments.
The company remains cash generative, supporting its progressive dividend policy. Dividends per share are forecast to grow from 93p in 2024 to 107.7p by 2027.
BofA Securities cautions that risks include potential integration setbacks, macroeconomic deterioration, and persistent market volatility, which could affect net flows and investor sentiment.