Brooks Macdonald Share Price (BRK)

FUM rose by 4.3% in Q2-FY24 from £16.9bn on 30 Sep 23 to £17.6bn on 31 Dec 23. This is on track to meet our end-FY24 (30 Jun 24) FUM target of £18.4bn (+9% y-o-y growth). Investment performance was strong, contributing £821m to FUM or +4.9% of opening FUM. Net flows remained subdued at -£98m (Q1: -£70m).

We remind readers that in Oct 23, BM announced a programme to reduce costs by around £4m per year, with one-off FY24 restructuring costs of up to £3.0m. This followed extensive technology and digitalisation investment over the last few years, enabling the group to manage the same or even higher business volumes with a reduced workforce. BM has now confirmed that the one-off restructuring cost is in line with the £3m estimate, and that some cost savings will be seen in FY24. As such, we reduce our FY24 cost estimate and increase our profit estimate as per the table below.

With net flows slightly weaker than forecast, but costs also lower, our fundamental valuation remains 3,050p per share. We also see BM’s PER of 16.5 as too low.

Link to report: https://www.equitydevelopment.co.uk/research/fum-up-4.3-in-quarter-profit-forecast-upgraded-a-touch

Brooks Macdonald has announced it intends to reduce staff complement by 55, around 10% of its workforce of just over 500. It expects to save £4m of costs per year from the changes, but it will incur restructuring costs of up to £3.0m, to be recognised in the current FY24.

We update our forecasts and valuation as a result of these changes, primarily:

- Adding ‘one-off’ restructuring charges of £3m to FY24 which reduces statutory profits but not ‘underlying’ profit.

- Reducing staff costs from FY25 onwards, by around £4m per year.

While these adjustments offset each other to a degree, the increase in outer-year profits is the dominant driver of valuation and we increase our fundamental valuation from 3,000p per share to 3,050p per share (71% above the current share price). We also maintain our view that the ‘de-rating’ of investment/wealth managers, especially Brooks Macdonald, has been overdone.

Link to research note & audio summary here:

https://www.equitydevelopment.co.uk/research/tech-investments-pave-way-for-staff-cuts-margin-upside

What does an acceptable bid here looks like?

Using the same EV/ PBT metric as 7IM (only data point I have) then £640m would be the total value. Finger in the air says that’s north of £30 a share!

Given £28 was the peak you’d have to be around that level?

All this said of course markets and the macro environment has changed (but 7IM deal was a month or so ago)

Possible bid interest looms and they want to defend! How about shareholder interest?

The trouble with ED is they are keep trying to justify why stocks they report on are doing so badly rather than concentrating on ones that are doing well. This is mainly because they get a fee. The particular problem here seems to be its hard to be that its hard to disguise from clients that their money could be doing better elsewhere. Apart from that it is really infuriating the way directors reward themselves with ludicrously generous share options for their lack lustre performance. As mentioned before their seemingly only gifted investor left the company a while back . You need to look after the good staff and sack the hangers on, fairly obvious who they are.