BofA Securities initiates coverage on Rathbones stock with buy rating

BofA Securities initiated coverage of Rathbones Group PLC (LSE:RAT) with a buy rating and a GBP22.50 price target, implying a 35% upside. The firm cites Rathbones' acquisition of IW&I, which increased funds under management by 67%, as a key driver for future growth, projecting operating margin expansion to 28.4% in 2026. BofA believes the current valuation, trading at a 19% discount to its five-year average, fails to reflect the transformational impact of the acquisition and expects net flows to benefit from market momentum and reallocation to European equities.

Analysis

BofA Securities has initiated coverage on Rathbones Group PLC (LSE:RAT) with a buy rating and a price target of GBP22.50, indicating a substantial 35% potential upside from current valuation levels. The firm's positive stance is significantly influenced by Rathbones' recent acquisition of IW&I, which increased its funds under management and advice by a considerable 67%. According to BofA Securities, Rathbones is currently trading at an attractive valuation of approximately 10 times its 2026 estimated price-to-earnings ratio, representing a 19% discount to its five-year average. This valuation, BofA believes, does not fully incorporate the transformative impact of the IW&I acquisition. The integration of IW&I is anticipated to conclude in the first half of 2025, with most synergies and a recovery in net flows expected to materialize in the second half of 2025. These developments are projected by BofA Securities to expand Rathbones' operating margin to 28.4% in 2026, exceeding the consensus estimate of 27.7%. Furthermore, BofA anticipates that Rathbones' net flows within its wealth and asset management divisions will be positively influenced by prevailing equity market momentum, a softening interest rate environment, and a potential reallocation of capital from U.S. to European equities, strengthening its position as one of the UK's largest wealth managers.

Key Decisions for Investors

• Investors should consider the potential undervaluation of Rathbones Group PLC, as highlighted by BofA Securities, particularly in light of the 35% upside to the GBP22.50 price target and the stock trading at a discount to its historical P/E ratio.
• Monitor the IW&I integration progress, with H1 2025 completion and H2 2025 synergy realization being key periods that could trigger re-rating and margin expansion towards BofA's projected 28.4% by 2026.
• Evaluate the investment in the context of expected macroeconomic tailwinds, such as continued equity market strength and favourable shifts in fund flows towards European equities, which could further bolster Rathbones' performance.