Tech investments pave way for staff cuts & margin upside

Brooks Macdonald has announced it intends to reduce staff complement by 55, around 10% of its workforce of just over 500. It expects to save £4m of costs per year from the changes, but it will incur restructuring costs of up to £3.0m, to be recognised in the current FY24.

We update our forecasts and valuation as a result of these changes, primarily:

• Adding ‘one-off’ restructuring charges of £3m to FY24 which reduces statutory profits but not ‘underlying’ profit.
• Reducing staff costs from FY25 onwards, by around £4m per year.

While these adjustments offset each other to a degree, the increase in outer-year profits is the dominant driver of valuation and we increase our fundamental valuation from 3,000p per share to 3,050p per share (71% above the current share price). We also maintain our view that the ‘de-rating’ of investment/wealth managers, especially Brooks Macdonald, has been overdone, and we refer readers to our 12 October note Well-flagged sluggish quarter, but price fall looks overdone for details.