Investec Securities believes Brewin Dolphin offers a compelling opportunity following its buy spree over the last few months.
The broker upgraded its Brewin rating from hold to buy and increased its price target from 300p to 335p, versus a current 309.8p.
Brewin has made four acquisitions since December at a cost of £63 million. The biggest of these was the £37 million purchase of Investec’s Republic of Ireland wealth business on 10 May.
Brewin accompanied the deal with a £60 million placing to boost regulatory capital, and bank cash for further acquisition opportunities
The Ireland purchase followed the £19 million purchase of Bath-based Epoch Wealth Management.
Investec analyst Salvatore Caruso said an acquisitive strategy made sense in the tough market conditions: ‘Given the more difficult market environment for organic flows, it is not surprising that Brewin Dolphin has turned to acquisitions as a means to top up that organic growth.
‘Factoring in a mark-to-market on funds under management (FUM), together with the acquisitions, sees our FUM, revenue and adjusted profit forecasts rise by circa 9-13% on a full-year basis.’
Heavy investment was s factor behind an 8.2% fall in Brewin's profitability in the six months to the end of March, from £38.8 million in the same period of 2018 to £35.6 million.
The interim update, issued earlier this month, also showed total funds under management rose from £39.7 billion to £42.4 billion.
Within this discretionary funds were virtually unchanged at £37.5 billion, with £1 billion of new funds offset by investment performance.
Total income for the period increased marginally from £161.8 million to £162.3 million.
Caruso assumes the four acquisitions will generate cash by the start of 2020, forecasting revenue up £21 million and profit up £6.6 million.