Companies: BRW   

Turn the clock back a year or two and the name Brewin Dolphin was synonymous with the split capital trust debacle. The broking firm had been one of the ‘magic circle’ of firms bringing new splits to market and in ‘Dotty’ Thomas it had one of the sector’s great luminaries. Now it looks as if the splits issue has gone away (along with Thomas). Brewin has made a £5 million ex gratia payment to the Financial Services Authority’s special fund and reckons its own £2.5 million reserve for dealing with claims will be sufficient.

  That leaves it with net worth of £85 million (after revaluing its stake in Euroclear, the business that bought the UK settlement operation Crest), of which £51 million is cash. At the current 120.75p, the business itself is valued at around £236 million, which equates to a little over four per cent of the £5.6 billion of discretionary funds under management. However, if you look at the total funds under custody for clients, the assets under management figure more than doubles.

  These numbers are of relevance because the private client broking sector is consolidating through a succession of mergers. There is now talk that Brewin is next in line to go. Evolution’s name is often mentioned as a potential bidder, though Evolution has just announced it is handing back a large chunk of its surplus cash to shareholders. That would still not prevent it making a fairly cash-rich offer for Brewin if it so chose.

  Last year, Brewin almost quadrupled profits to £16.1 million on the back of the recovery in the stock market. It will have got off to a good start to the current year too, though the last two or three weeks have seen interest wane as the FTSE 100 index has tailed back through the 5,000 mark and US markets have started preparing for higher interest rates. The company has been expanding by attracting private client teams from other firms, adding to its regional coverage and developing its corporate finance side. Its execution-only operation, Stocktrade, which basically services SIPP administrators, started making a worthwhile profit last year and should do a lot better this.

  The shares sell for about 21 times historic earnings, but that multiple should fall this year. More important is the relationship between market capitalisation and funds under management – and Brewin looks reasonably valued on this basis. The firm has already announced an increased first interim dividend, which puts the shares on a yield of 3.3 per cent. It looks as if there is more to come on that front. With bid chatter in a consolidating sector, Brewin looks a good addition to any portfolio. Buy.

Brewin Dolphin	LSE	£249.39m	116.00p	1.00p
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