RBC upgrades Rathbones to "outperform," PT raised to GBp 2,000

Investing.com -- RBC Capital Markets has upgraded Rathbones Group (LON:RAT) to “outperform” and raised its price target to GBp 2,000. 

This decision is rooted in the expectation of underappreciated medium-term growth for Rathbones.  

According to RBC Capital Markets analysts, the anticipated deal synergies from the Investec (LON:INVP) Wealth (IW&I) acquisition are expected to yield more substantial earnings benefits from FY25 onwards. 

This financial development is projected to result in a 7.1% CAGR in earnings over FY24-27. The analysts believe that this growth is not adequately reflected in the group’s current valuation.  

The report by RBC Capital Markets also highlights that Rathbones is currently trading at a material discount to its peers, despite demonstrating stronger near-term growth. 

The closest listed peers to Rathbones are seen by RBC Capital Markets as St. James’s Place Plc and Quilter Plc.  

RBC Capital Markets analysts also point to the potential for significant capital returns as a factor supporting the “outperform” rating. 

The combination of strong cash generation, a progressive dividend policy, and the discounted valuation leads RBC Capital Markets to expect Rathbones to generate a 6.2% ordinary dividend yield for FY25. 

Furthermore, there is an anticipation of a special dividend or buy-back, potentially adding 3.5p. 

Over a 3-year outlook, RBC Capital Markets anticipates that approximately 21% of the current market capitalization could be returned to investors.  

RBC Capital Markets also suggests that Rathbones could become an attractive merger and acquisition target as the integration of IW&I nears completion. 

The wealth management sector, in general, is appealing to larger financial groups due to the high conversion of profits to capital. 

The analysts at RBC Capital Markets believe that the discounted valuation of Rathbones could particularly draw interest from potential acquirers seeking a business with a book of business with higher average client assets.