Schroders plc Vtg Shs Ordinary GBP1 (SDR)

Company overview

The Group's core activity is that of fund management services. The group manages over £180 billion for a variety of institutional and retail clients. In addition, the group provides private banking facilities to high net worth clients.

HL Comment (10 November 2011)

The group's third quarter/nine month trading update (10Nov2011) broadly underlined management caution. Positively, net revenue during the quarter period rose to £290.4 million compared with a figure of £281.8 million for Q3 2010, while pre-tax profit rose to £101.6m compared to £94.5 million. Net revenue for its core Asset Management business for the quarter rose to £256.8 million (Q3 2010: £232.7 million) including performance fees of £14.3 million (Q3 2010: £7.6 million), while pre-tax profit climbed to £92.7 million (Q3 2010: £85.9 million). For the Private Banking business, net revenue rose to £29.3 million (Q3 2010: £24.0 million), with profits up to £6.7 million (Q3 2010: £2.9 million). However, Assets under Management fell to £182.2 billion against £204.8 billion as of 30th June 2011, while accompanying management comments highlighted uncertainties going forward with regards to the Eurozone.

Negative Points:

• Assets Under Management (AUM) declined.
• Accompanying management comments proved cautionary in tone, noting "Financial markets are likely to remain volatile with no sustained recovery in equities until we see some resolution to the uncertainties facing the Eurozone. Until such time, the environment in Intermediary and Private Banking will continue to be difficult with investors reluctant to commit funds to risk assets, and opportunities in Institutional held back."
• At the heart of any asset manager is the investment team. As with any fund management business, there is a risk that if a "star" manager leaves, investors and assets under management may follow.
• The Retail Distribution Review (RDR), launched by the Financial Services Authority back in June 2006 continues to provide some uncertainty.

Positive Points:

• Both revenues and profitability have continued to progress, aided by increased performancefees.
• Institutional investors continued to show good appetite for its Multi-Asset, equity and fixed income strategies. For the quarter, net inflows of £2.8 billion were recorded.
• The blue-chip asset manager continues to enjoy diversification in both product and client type, along with its geographical footprint. The group previously noted that two thirds of group revenues arose from clients outside of the UK.
• A progressive dividend continues to be pursued. At the half year results, the board declared an interim dividend of 13.0 pence per share (interim dividend 2010: 11.0 pence).

Consensus:

On balance, market consensus opinion currently denotes a hold.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.