Quilter jumps 6% as leading investment bank turns bullish on recovery in fund flows

Quilter shares rose 6% after UBS upgraded its rating to 'buy' with a price target of 190p, driven by expectations of improved fund flows and margin expansion. UBS forecasts a 7% net client cash flow as a percentage of AUMA, exceeding market expectations, and anticipates a 12% compound annual earnings growth through 2029. The upgrade also factors in potential shareholder payouts of up to 3.5p per share following a review of Quilter's capital needs.

Analysis

Quilter PLC (LSE:QLT) shares experienced a significant 6% increase, closing at 165.7p after a 9.2p rise, following an upgrade from UBS to 'buy'. This bullish stance is predicated on growing confidence in the wealth manager's capacity for enhanced fund flows and margin expansion in the medium term. UBS analysts, after engaging with Quilter and its peers, have revised their price target upwards from 165p to 190p. They project Quilter will achieve approximately 7% net client cash flow as a percentage of assets under management and administration (AUMA), surpassing current market consensus. Notably, Quilter's platform business has demonstrated market share gains in gross flows, with further upside anticipated if outflows diminish as interest rates decline. UBS forecasts the Bank of England base rate will fall to 3.75% in 2025 and 3% in 2026, which is expected to aid in reducing withdrawals, especially from mortgage-linked investments. Despite a minor reduction in near-term earnings estimates, UBS projects a robust 12% compound annual growth in Quilter's earnings through to 2029, potentially lowering the stock's price-to-earnings ratio to approximately 12x by 2027. Furthermore, a review of Quilter's capital requirements could lead to a special shareholder distribution of up to 3.5p per share, adding to the positive outlook.

Key Decisions for Investors

• Investors should consider the positive re-rating by UBS, which highlights potential for improved fund flows, margin expansion, and a significant earnings growth trajectory for Quilter through 2029.
• Monitor the progression of net client cash flows against UBS's 7% AUMA target and track evolving Bank of England interest rate policies, as these are key drivers for moderating outflows and supporting the investment thesis.
• Factor in the potential for a special shareholder distribution of up to 3.5p per share, which could provide an additional return component beyond capital appreciation.