RBS upgrades Schroders on diversification appeal and non-voting discount

Setting a price target of 3,100p that offers more than 25% upside, RBC said Schroders had the strongest balance sheet in the sector and ability to offer diversification that was cherished in these uncertain markets.

Shcroders has good diversification across channels, with 57% institutional exposure and the rest in intermediary and wealth management; across region, with 41% UK, 21% Europe and Middle East, 25% AsiaPacific and 13% Americas; and across products, with 41% equities, 19% fixed income, 5% alternatives, 25% multiasset and 10% wealth management.

"Schroders trades at a rare discount to the asset managers peer group on an EV/EBITDA basis
and at a slight premium on a cash-adjusted P/E basis," the bank said.

Given the asset manager’s diversification and financial strength, and with the shares having fallen from above £30 at the end of December to £25 earlier this week, analysts believe the company deserves a premium valuation to the sector.

"We see Schroders’ current valuation as an attractive entry point in the historical context to gain exposure to the stock."

Also, the non-voting shares (ticker: SDRC) are also attractive, on a wider-than-average 24% discount to the voters that could outweigh any liquidity concerns, versus an average discount of 21% over the last five years.

"We believe the current discount is too wide and that investors in the SDRC line could benefit from the discount tightening."