Another solid quarter, guidance confirmed

Brooks Macdonald (BM) continued to build momentum in Q2 of FY23 (to 31 Dec 22), with FUM increasing by 4.5% (+£0.7bn) over the quarter to £16.2bn (end of Q1: £15.5bn). BM chalked up its 7^th consecutive quarter of positive net flows of £156m, an annualised rate of 4% of opening FUM. Investment performance contributed £546m to the FUM increase (3.5% of opening FUM, in line with the benchmark MSCI PIMFA Private Investor Balanced Index - capital only).

Management have confirmed that underlying profit and margin are running in line with expectations, and our forecasts remain unchanged, although our fundamental valuation ticks up to 3000p per share, which is 44% above the current share price, with the increase due to a reduction in the UK 10-year gilt yield (the risk-free rate used in our DCF valuation). We also highlight that BM’s PER of 14.0 is significantly below a peer group median of 17.3 which doesn’t look justified. We will revisit our forecasts & valuation when H1 results are released on 2 March 2023.