Rathbones Group PLC (RAT)

Rathbones rallies on hopes for merger benefits

Rathbones (RAT) has delivered a good start to the year and earnings can push higher still if it delivers the cost savings from last year’s merger with Investec Wealth & Investment, says Peel Hunt.

Analyst Stuart Duncan retained his ‘buy’ recommendation and £22.25 target price. Last week the wealth manager’s shares rallied 3.6% to £17.92 on the back of a rebound in the UK stock market and its positive first quarter trading statement on Thursday.

The shares have rebounded 20% from a low of £14.94 on 22 March, having tumbled from £19.18 in April last year when the all-share deal valuing the Investec division at £839m was announced in April 2023. Rathbones peaked at £24 before the 2020 Covid pandemic.

Total assets under administration grew by 2% to £108bn in the first three months of this year, putting it ‘well on track for year-end assumptions of £110bn’, Duncan said.

There were also positive inflows in Rathbones’ discretionary investment service although these were offset by outflows from Investec Wealth with which the company completed its merger in September.

Profits for the first quarter came in at £60m and ‘we anticipate increasing full-year expectations by 2% given the positive start’, said Duncan.

‘We see the delivery of the integration benefits as underpinning earnings forecasts – with momentum now moving estimates higher,’ he said.

‘On our earnings forecasts, Rathbones is trading on a price/earnings [multiple] of 11x, while the yield is approaching 6%.’

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