I’ve been looking at Rathbone Brothers (LSE: RAT), and the investment manager’s first-half results released Tuesday are making me sit up and pay close attention.
Rathbone shares have climbed by 52% since 2016’s low in October, to 2,667p (including a results-day 37p rise), and have doubled in price over the past five years. The reason for that seems apparent from the company’s recent performance — we’ve seen earnings per share growing by 58% in just four years, with analysts forecasting a further 15% gain by the time we reach December 2018.
While the company spoke of “ongoing geopolitical uncertainty” which is currently dominating short-term market conditions, we did see underlying pre-tax profit rise by 22.7%, to £43.3m, in the first six months of the year.
Funds
The key long-term measure of confidence in an investment manger is its level of funds under management, and we saw a 7% rise to £36.6bn since December 2o16 — and seeing as the FTSE 100 put on only 2.4% over the same period, I’m impressed by that.
I would not place my own investment cash under the control of a professional manager, purely because I think my own simple strategy is effective enough without paying anyone else to do it for me. But there are many, from private investors to charities and pension funds, who need the services of companies like Rathbone — and I reckon buying shares in investment managers themselves can be very rewarding.
I see what might be thought of as contrarian safety here too — it’s when markets are at their most volatile that people turn more to respected professionals to manage their cash.
And I see Rathbone Brothers as a well-managed and well-respected firm that should continue to do well.
Corporate finance
Financial services at all levels can be very profitable, and I’ve also been examining Intermediate Capital Group (LSE: ICP). The company provides capital for a variety of corporate needs, including IPO, management buyouts and similar.
The first quarter of this year has been pretty good, with inflows in the period of €0.6bn coupled with “robust demand for current fundraising“.
The firm did see a 2% drop in funds under management, to €23.3bn, in the three months, but it put that down to an “expected quieter quarter” and an adverse currency exchange impact on dollar-denominated funds among other things. But inflows in the second quarter are expected to be higher.
Outgoing chief executive Christophe Evain said: “Our expectation continues that this will be a strong fundraising year,” and that supports expectations of a good year this year.
One for the brave?
Intermediate Capital is in a volatile sector, and that can show through in erratic share price movements. But one thing I see as a long-term calming effect is the company’s progressive dividend.
It’s grown from 20p per share in 2013 to 27p this year, and though an impressive share price performance over that timescale has dropped the yield to 3.8%, we’re also looking at a trailing P/E of under 10. Dividend cover is strong, and I expect to see yields increasing nicely over time.
If you’re happy to handle short-term volatility without panicking (which I see as an essential characteristic of a growth investor), I really do see Intermediate Capital Group as having solid long-term potential.
