Why BofA is bullish on Rathbones shares

BofA Securities initiated coverage of Rathbones Group with a "buy" rating and a 2,250 GBp price target, implying a 35% upside, citing undervaluation and improving fundamentals following the Investec Wealth & Investment U.K. acquisition. The acquisition expanded Rathbones' funds under management by 67% to £104 billion, and BofA anticipates net flows to recover in Q3 2025, further aided by expected Bank of England rate cuts and improving operating margins, with synergies from the IW&I deal progressing ahead of schedule.

Analysis

BofA Securities has initiated coverage on Rathbones Group with a 'buy' rating and a 2,250 GBp price objective, suggesting a significant 35% upside from its current 1,662 GBp price. This positive outlook is predicated on the stock's current undervaluation, trading at approximately 10 times its forecast 2026 earnings—a 19% discount to its five-year average and below the 12x forward P/E of domestic peers. BofA attributes this discount to investor apprehension regarding the integration of Investec Wealth & Investment U.K. (IW&I), an acquisition that has substantially expanded Rathbones' funds under management and administration (FUMA) by 67% to £104 billion as of Q1 2025, positioning it as one of the UK's largest discretionary wealth managers. BofA analysts view these integration concerns as overstated, noting that 99.7% of IW&I clients have already migrated and synergies are progressing ahead of schedule, with £30 million realized in the first year out of a £60 million target. Rathbones' operating margins are also on an upward trajectory, reported at 25.4% in 2024 with a management target of 30% by September 2026; BofA forecasts 28.4% for 2026, exceeding the consensus of 27.7%. Net flows are anticipated to recover in Q3 2025, bolstered by strong European equity markets (EuroStoxx 50 up 9% YTD), expected Bank of England rate cuts from 4.25% to 3.5% by year-end, and capital reallocation from the U.S. to Europe. The company's revenue remains resilient, with wealth management contributing 91% of operating income in 2024 at a fee income revenue margin of 58.5 basis points, and its asset management arm (FUMA £15.4 billion at Q1 2025) provides diversification. Rathbones' cash-generative nature supports a progressive dividend policy, with dividends per share projected to grow from 93p in 2024 to 107.7p by 2027. While risks such as integration setbacks or macroeconomic deterioration exist, the strong M&A track record and potential for further growth offer additional positive considerations.

Key Decisions for Investors

• Investors could consider the current valuation of Rathbones Group as an attractive entry point, given the 35% upside potential highlighted by BofA and its discount relative to historical averages and peers, contingent on successful integration and flow recovery.
• Monitor the completion of the IW&I integration, realization of the full £60 million synergy target, and the forecasted Q3 2025 net flow recovery, as these are critical for achieving projected margin improvements and potential share price re-rating.
• Factor in the supportive macroeconomic environment anticipated by BofA, including strong European equity performance and Bank of England rate cuts, while remaining vigilant to risks such as market volatility or unforeseen integration challenges.
• Evaluate Rathbones' capacity for sustained dividend growth, with DPS forecast to reach 107.7p by 2027, and its proven ability to execute M&A as potential drivers of long-term shareholder value.