RBC upgrades Rathbone Brothers to 'outperform'

RBC said that following a 20% fall in the share price since the start of 2018, it now believed Rathbone's present valuation underappreciated the strength of the franchise.

With the stock now trading at a 2020 price-to-earnings ratio of 14.7x, the Canadian broker stated that Rathbone's shares were changing hands at a discount to the FTSE 250 when compared to an 18% average premium over the last five years.

"Historically, the P/E has rarely been at or below parity with the FTSE 250, and when it has occurred, it has resulted in a share price rally," said RBC.

In addition to the presumed undervaluation, RBC said it still expects a sector-leading operating margin in 2020, even after reflecting downward revisions in guidance, and also noted that the company boasted the strongest record of inorganic activity – "a key leg of growth in the sector".

"Even after new guidance of being “closer to the mid 20s”, we believe RAT still has the best-in-class margin, meaning that its profits remain best cushioned among discretionary fund managers from any adverse market moves impacting fee generation," said RBC.

"In summary, we believe the current share price undervalues the RAT franchise, and believe a re-rating is therefore likely over the next 12 months," added RBC, which lowered its target price on Rathbone's shares from 2,450.0p to 2,240.0p.