Schroders PLC

Schroders PLC (LON: SDRC) is an FTSE main market listed global asset manager that provides advisory and consultancy services.

Rationale for Valuation – HOLD at GBX 1,960.00

• Acquisition Completion: On 11 April 2022, SDRC confirmed that all necessary regulatory approvals have now been received regarding the 75% shareholding in Greencoat Capital Holdings Limited.
• Financial Growth: During FY21, net income and basic earnings per share surged 18% and 28% year-on-year, respectively.
• Assets Under Management: At the end of FY21, SDRC had £731.6 billion of assets under management, representing a 10% increase against FY20.
• Technical Indicator: From the technical standpoint, the current market price is trading above the 20-day EMA (GBX 1,934.33), reflecting a bullish price momentum.
• Undervalued Multiples: On a forward 12-month basis, key valuation multiples (EV/Sales, EV/EBITDA, and Price/Earnings) are lower than the median of the Financials sector.

Key Risks

• Emerging Risk: British inflation hit a 30-year high of 7% in March 2022, which may cause a further interest rate hike. The onset of inflation and hawkish central bank policy globally can impact the Company’s investment strategies.
• Gloomy Outlook: The World Bank has reduced its global growth forecast for 2022 from 4.1% to 3.2%. Moreover, the lockdown in China can worsen the global economic outlook.

Financial Highlights (for the year ended 31 December 2021, as of 3 March 2022)

(Source: Company Website)

• Profitability: During FY21, profit before tax jumped 25% year-on-year, reaching £764.1 million, reflecting strong financial results.
• Dividend Increase: The total dividend per share recommended for FY21 was 122 pence, equating to a 7% increase against FY20.
• Outperformance Against Benchmark: In terms of 3-year investment performance, 79% of assets outperformed their relevant comparator.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

*Peers: Intermediate Capital Group PLC, STM Group PLC, Oakley Capital Investments Ltd, and Record PLC.

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

Conclusion

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the financial growth, strong AuM, undervalued multiples, and support from the valuation as done using the above method, we have given a “HOLD” recommendation on Schroders PLC at the closing market price of GBX 1,960.00 (as of 21 April 2022).

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

Note 2: Investment decision should be made depending on the investors’ appetite on 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 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.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

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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