Morgan Stanley upgrades Schroders, switches preference from DWS

Morgan Stanley said that after underperformance versus the sector year-to-date, with the valuation sitting at a more than 20% discount to its longer term price-to-earnings average, it sees an interesting entry point at Schroders, "where mutual fund flow momentum has seen the biggest sequential improvement driven by fixed income, and where improvement in 1 year fund performance suggests building potential to benefit from broader risk re-engagement as macro conditions continue to build and rate levels come down".

The bank, which lifted its price target on Schroders to 500p from 415p, said the business is relatively better positioned than peers to tap growth opportunities in private markets given the breadth of its offering, while its Asian footprint positions Schroders well to take advantage of improved opportunities in Japan and benefit from any recovery in China.

"The wealth division provides stickier assets and more stable growth versus asset management," it said.

"Given an improving growth trajectory we increase our target P/E multiple to 12x 2025, broadly in line with the longer term European sector average, and still a circa 15% discount to Schroders' longer term average P/E."

The new price target implies around 30% upside.

Morgan Stanley downgraded DWS to ‘equalweight’ from ‘overweight’ and cut the price target to €42.00 from €46.60.

"With the €800m excess capital return now in the rear view mirror, and with some continued challenges expected in its real estate franchise along with lumpy lower margin 2Q24 outflows as signalled at the AGM, we see the risk/reward as more balanced at DWS despite the continued benefit being seen by its ETF business from demand from lower cost beta," it said.

At 1040 BST, Schroders was up 5% at 395.80p.