Credit Suisse downgraded Schroders on Friday to ‘neutral’ from ‘outperform’ and slashed the price target to 470p from 510p, citing flow headwinds and cost inflation.
CS said the downgrade reflects a 3%-9% reduction in its 2023-25 operating earnings per share forecasts.
“We continue to like Schroders’ longer-term strategy and its diversified business model,” it said. “However, we see headwinds for 2023: we forecast +1% growth in profit, and technical support factors from increased index weighting are now past.”
The bank said it forecasts only 4% revenue growth in 2023 despite the tailwind effect of private asset acquisitions in 2022.
“This reflects: i) caution on achievable levels of fundraising for Schroders Capital this year; ii) strong bias of fund flows in Q1 / H1 to low-margin Solutions; iii) risk that modest mutual fund flow momentum will be derailed by poor relative investment performance; and iv) CSe caution on JV and Institution flow momentum,” it said.
It also pointed to near-term cost inflation. “We forecast 6% cost growth in 2023E,” CS said.
“This reflects our expectation that Schroders will continue to invest in IT/Cloud infrastructure and extension of its Chinese joint ventures (WMC and WOFMC).”
The bank said it prefers outperform-rated Man Group. “We see positive fund flow momentum into FY23E, support from a further $125m in buybacks to start shortly, and inexpensive valuation at 8.7x 2024E PE for 15% EPS CAGR 2023E-25E,” it said.
At 0920 GMT, Schroders shares were down 3.6% at 462.10p.
