Brewin Dolphin 🐬

You may remember a brief post about Charles Stanley and Berkshire Hathaway, where we mention some financial companies are either looked to for guidance or generally thriving in the current climate.

Brewin, the 250 year old wealth management firm, hasn’t had the same luck. However, they have found some unexpected high inflows into their funds. Boosting their outlook after a hash discount was applied by Coronavirus.

The share price started to rally after the first quarter of inflows became public knowledge.

But how does Brewin look as a long term investment? UK based investment firms have a strong track record and often appear to be strong quality picks, is this the case here?

As expected from an established wealth manager, we have a very strong quality ranking. Very high profitability (big margins on managing money and advice), very strong financial strength (low to know debt and lots of cash to cover themselves), and finally they like to reward their share holders with dividends! One of the few firms still paying out dividends in the current pandemic.

The recent discount (60% dip days ago) has boosted the Value score for Brewin and put it in eye shot of the value investors. While the balance sheet and income statements versus the share price don’t show anything particularly interesting, the cash flow against share price is offering a very deep discount. This will be the figure the value investors want to get their teeth into. Not a classic deep value “no brainier” but something to consider.

Finally we come onto the momentum, which is very disappointing. The recent results may go some way to correcting this but the experts have a dim view of Brewin’s growth plans. Future revenues aren’t growing as much compared to peers, the earnings are slowly increasing but the struggle to convert this into more revenue weighs it down. The general sentiment is “middling”, with no strong views for the future.

That said all the analysts covering Brewin Dolphin recommend the stock as a buy right now. While the future growth seems slow they believe it’s cheap enough to hold onto for the long term.

While the analysts might not be showing too much love for Brewin’s future, the directors sure have faith. Directors of Brewin Dolphin loaded up on £90k worth of stock!

Which side are you on? Is now to the time to buy at a discount or will this become the new normal?

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Even with the strong results, which by and large are carrying on. Brewin are now considering cost saving.

I suspect this is driven by working from home and reassessing what employees and departments they really need. The finance sector is great at high revenue but can struggle with profitability. This would be a smart shorter-term way to increase their profit margin without too much disruption.