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Investing.com -- Quilter Plc (LON:QLT) shares rose more than 5% Wednesday after UBS Global Research upgraded the U.K. wealth manager to “buy” from “neutral,” citing a stronger outlook for client flows and platform performance over the medium term.
The upgrade followed UBS meetings with Quilter and several competitors in the U.K. wealth management sector, including St. James’s Place, Integrafin and Rathbones. UBS raised its 12-month price target on the stock to 190p from 165p.
UBS analysts said they came away “more constructive” in several key areas, including IFA gross flows, reduced outflows tied to falling interest rates, improved revenue margins, and product developments at Quilter Investors.
UBS now forecasts net client cash flow of about 7% of Quilter’s assets under management and administration in the medium term.
That projection is 1 to 2 percentage points higher than company guidance and consensus expectations.
The platform business is expected to be the main growth engine. UBS noted Quilter has gained market share in gross inflows, particularly from independent financial advisers.
At the same time, the rate of outflows has eased, a trend UBS expects to continue as U.K. policy rates fall. UBS forecasts rates to decline to 3.75% in 2025 and to 3% in 2026, from 4.75% in 2024.
UBS also sees room for improvement in Quilter Investors, which has underperformed in recent years. New product offerings, such as a “smoothed managed” fund range, and access to third-party platforms like Transact could help boost inflows and margins.
Although UBS trimmed earnings forecasts for 2025 to 2027 by 1% to 3%, the brokerage expects Quilter’s operating margin to expand to above 30% by 2026.
Adjusted earnings per share are projected to grow at a 12% compound annual rate through 2029, bringing the price-to-earnings ratio down to about 12 times by 2027, from 15.5 times currently.
UBS also flagged potential shareholder returns. While management has yet to complete a review of its capital needs, UBS estimates a special distribution of up to 3.5p per share, or 2% of market capitalization, is possible. Quilter’s current capital coverage ratio is 219%.
The analysts said Quilter remains their top pick in the U.K. wealth management sector, citing its performance recovery, conservative forecasts, and continued cost discipline.
“Quilter is well placed in the sector being the only open architecture UK wealth management offering that has achieved scale (through prior acquisitions) in all parts of the value chain (advice, platforms, discretionary fund management and investment solutions),” the brokerage said.