Is this FTSE 250 stock too cheap to miss?

Wealth manager Quilter has recently released its half-year report. Is now the perfect time to buy this FTSE 250 stock for a long-term hold?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

FTSE 250 stock Quilter (LSE: QLT) saw its share price fall 5% last week. The release of the company’s half-year results on the 10 August seemed to turn off some investors. A reported 12% decrease in total assets under management has shaken confidence in the wealth manager’s capabilities.

Yet the company has been heavily investing in long-term projects such as its Business Simplification programme. While inflationary pressures have undermined the UK’s financial sector this year, I think Quilter has good prospects for the long term.

With the share price having fallen 36% over the last year, I feel this FTSE 250 stock could be a rewarding buy at 114p. Let’s look at why I’d consider adding Quilter shares to my portfolio.

Simple business

Quilter has been driving forward that Business Simplification programme. With results already flowing in, I’m bullish on the stock.

The programme aims to reorganise Quilter’s structure around its Affluent and High Net Worth platforms while re-engineering its property strategy. It has already brought in an annual run-rate saving of £13m. Total reduction in operating costs is estimated at around £45m by 2024.

However, management stated the initiative will cost roughly £55m. This has been primarily sourced from the sale of Quilter International in November 2021. The International platform brought in adjusted profit before tax of £29m in the first half of FY21. It’s concerning to see Quilter wave goodbye to these profits. Evidently however, the company’s priority is creating efficient operations back home. With such large cost reductions achieved, I’m willing to overlook the departure of Quilter International.

With the smplification programme well-funded, and already driving considerable cost reductions, returns from Quilter could improve.

Consistent yield

A consistent dividend yield is one of the first features of a stock I look at. In the case of Quilter, a 5% dividend yield is a beaming green light to me. With regular payouts, I see it as an attractive long-term hold.

Management recently declared an interim dividend of 1.2p. This fell short of the 1.7p interim payout in 2021. However, rising inflation rates have hurt the UK’s financial sector this year. It’s understandable to me that a wealth manager such as Quilter takes a more conservative financial approach.

Net inflow from the Investment platform fell from £1.8bn to £1.6bn. This may make me question whether Quilter can deliver strong final dividends this year. However, operating margins increased 2%, thanks to expense reductions. Also, adjusted profits pre-tax increased 9% from £56m to £61m. Final dividends across FY19-21 were 3.5p-3.9p. I think, with increased profits and expense reductions, the company will be able to deliver somewhere in this range for FY22.

Clearly, Quilter has managed to weather the storm so far. The Business Simplification programme is achieving impressive reductions in operational costs and is set to go far further. Strong dividend yields indicate the company is proficient in its financial management. Because of this, I think the Quilter stock is no-brainer buy for me at 114p. At that price I really do see it as too cheap to miss. I’ll be looking to add some shares to my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Hamish Cassidy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »