Rathbone Brothers surges on Numis upgrade

Rathbone Brothers shares surged on Tuesday as Numis upgraded its stance on the stock to ‘buy’ from ‘add’, with a 2,350p price target.

The brokerage said that with the stock trading at a discount of around 20% to its 10-year average price-to-earnings of 15x, it was an ideal time to invest in the quality play.

“During its 275 year history, Rathbone has successfully navigated its way through a number of storms. So whilst uncertainty surrounding Brexit may indeed impact near-term fund under management flows, we believe Rathbones’ conservative operating model combined with the long-term industry growth drivers should continue to support average earnings growth of around 10% per annum over the medium-term.”

Numis said wealth management was a structural long-term growth industry due to the rapidly-evolving defined contribution pension market, an ageing and wealthier population, historical under saving by the UK market and favourable regulatory changes.

“We believe Rathbone’s reputable brand, steady investment performance and established network have helped it become one of the more reliable private wealth managers in terms of organic FUM growth,” Numis said.

It said that this, along with strategic team hires, bolt-on acquisitions and stable margins, has helped to generate consistent double digit annual earnings per share growth over the last six years.

Numis added that the stock’s premium rating relative to peers was justified.

At 1350 BST, Rathbone shares were up 12% to 1,924.70p.