Schroders cut to 'neutral' from 'buy' by Goldman Sachs

The bank said the Schroders rating downgrade reflects the challenges facing the asset management industry as yields fall and growth expectations are reduced.

“We expect three factors to drive a challenging environment for asset managers over the next few years: (1) expected anaemic economic growth is likely to slow wealth creation and flows (especially in the UK), while the low-return environment (2) makes it hard for managers to structure compelling products and (3) means asset managers receive a weaker AUM tailwind from market appreciation,” Goldman analysts said in a broker note.

“While we view Schroders as one of the best structurally positioned fund managers globally, we believe its breadth and scale make it very difficult to avoid these macro headwinds entirely.”

Goldman expects second quarter assets under management to grow 5%, driven by quarter-end foreign exchange moves. The bank also sees a risk that the pre-Brexit uncertainty led to a slowdown in second quarter gross sales.

The earnings per share (EPS) forecast for fiscal years 2016-2020 was raised 1.3%-2.6% by Goldman due to foreign exchange and market moves in the last few days of the quarter.

“Our 12m price target rises to 2930p (from 2800p) as a result, based on a target price to earnings ratio of 14.5x 2017E EPS, plus 350p in balance sheet value; this implies 14% upside.”

Shares fell 0.43% to 2,575p at 1037 BST.