Brewin Dolphin Holdings PLC

Brewin Dolphin Holdings PLC (LON: BRW) is a FTSE 250 index listed United Kingdom-based company, which is a provider of personalised wealth management services.

BRW paid a final dividend of 11.10 pence per share attributable for FY21 on 09 February 2022, with an ex-dividend date of 06 January 2022.

Rationale for Valuation – BUY at GBX 299.00

• Decent Fundamentals: The strong market performance and record discretionary gross inflows had resulted in decent revenue growth of around 12.3% to £405.9 million during FY21. On the profitability front, the adjusted profit before tax grew by around 16.2%, and the margin stood at approximately 22.4%. In terms of financial position, BRW had maintained a decent capital adequacy ratio of 230%. Furthermore, the Company had increased the cash balance from £180.5 million during FY20 to £188.0 million for FY21.
• Technological Advancement: BRW had anticipated increased capital expenditure of £26 million for FY22 to be incurred towards a large-scale technology project. Furthermore, the implementation of modern technology and an operational excellence programme will drive cost benefits of £1 million in FY22 and £10 million in FY23.
• Technical Indicator: From a technical standpoint, 14-day RSI (~28.51) is around the oversold zone, while the stock price is close to the lower Bollinger Band.
• Undervalued Multiples: On forward 12-month basis, key valuation multiples (EV/Sales, EV/EBITDA, and Price/Earnings) are quite lower than the median of the Investment Banking & Investment Services industry.

Key Risks

• Subdued Macroeconomic Conditions: The dented risk appetite of investors amid record inflation rate in the UK, Ukraine war crisis, expectations for further interest rates hikes, and uncertain demand outlook.
• Business Risk: CBG is exposed to an uncertain economic environment, while its loan book can face high impairment provisions amid subdued consumer confidence.
  

Q1 FY22 Trading Update (for the three months ended 31 December 2021, as of 26 January 2022)

• Boost in Total Income: Higher funds and strong market performance driven an year-on-year increase of around 8.9% in the total income from £95.9 million for Q1 FY21 to £104.4 million during Q1 FY22. Moreover, new clients represented approximately 65% of discretionary fund inflows.
• Increase in Total Funds: The Company has shown a decent growth of around 3.7% in the total funds to £59.0 billion since the end of FY21.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

*Peers: Rathbones Group PLC, Hargreaves Lansdown PLC, and Brooks Macdonald Group PLC.

*All selected peers are LSE-listed Companies from the Financials sector.  

Conclusion 

The financial planning income rose by around 25.3% from £9.5 million during Q1 FY21 to £11.9 million during Q1 FY22. Moreover, BRW had also reported a 25% increase in MPS and Voyager income, driven by improved market performance and growth in the Voyager fund range. Following a decent top-line business and profitability growth, it is well-placed to serve the growing demand for financial advice and capture market share through widening the distribution channels. It aims to capture significant synergies and benefits across the business, supporting the objective to achieve double-digit earnings per share growth by 2025. The stock made a 52-week High and Low of GBX 412.00 and GBX 240.00, respectively.

Based on the increased revenue, strengthened capital position, good progress in its growth vectors, business simplification, and favourable valuation conducted above, we have given a “BUY” stance on Brewin Dolphin Holdings PLC at the current price of GBX 299.00 (as on 18 February 2022, at 8:30 AM GMT), with lower double-digit upside potential based on 14.02x Price/NTM Earnings (approx.) on FY22E Earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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