IN THE KNOW: Brooks Macdonald "set to return to earnings growth"
Brooks Macdonald Group PLC shares have been underperforming against the rest of its sector, but it looks set to return to growth, Berenberg said on Friday.
Shares in Brooks Macdonald were 0.4% higher at 1,290.00 pence on Friday afternoon in London. However, the stock has fallen 25% over the last 12 months.
Berenberg has initiated coverage of the London-based wealth manager with a 'buy' recommendation. Its price target is 1,600 pence, calculated using a discounted cash flow model and equivalent to around 11x Brooks' forecast earnings for financial 2027.
Brooks Macdonald previously, in mid-April, reported a net inflow of £58 million for the third quarter ended March 31, flipped from a net outflow of £129 million the year before.
Funds under management and administration faded to £19.9 billion as of March 31, from £20.1 billion at the end of December, which it said reflected the aforementioned inflow alongside "GBP301 million of adverse market and investment movements".
"Notwithstanding the inherent market uncertainty posed by ongoing global macroeconomic and geopolitical tensions, the full year 2026 financial performance remains in line with the board's previous expectations," Brooks Macdonald added.
Berenberg analysts said that despite the "clear signs of an improvement in net flows," Brooks Macdonald shares have continued to underperform compared with other wealth management stocks, and the valuation does not reflect its "improved outlook".
The firm's current EV/EBIT multiple is 6x, which they believe "does not reflect the long-term supportive drivers or the value that certain transactions have been completed at."
"The evolution of Brooks over the last three years has come at some cost – either from the acquisitions completed or the restructuring and exceptional costs incurred," the analysts acknowledged.
However, they expect free cash flow to improve, and support its forecast of increasing dividends, as Brooks "returns to a more normal cash generation pattern".
"Supported by the robust balance sheet, we expect the yield to grow from c.6% in FY26E, to over 7% in FY28E," they added.
Brooks has "a huge addressable market" for its "holistic wealth management service", Berenberg said, forecasting that this market will grow at around 7% per year. It also expects the company to report 8% compound annual growth in operating profit over the next three years.
"Our forecasts suggest that FY26 is the inflection point, and that revenues and operating margins will return to growth after headwinds in recent years," the analysts added.
Summarising, they commented: "[Brooks Macdonald's] business today has a holistic wealth management offering, covering investment management and financial planning, for both advisers and private clients.
"The evolution to this point may have resulted in short-term earnings headwinds, but we now see the business as set to return to earnings growth in a sector that continues to offer long-term structural growth."
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