Broker snap: Performance fee surprise at Schroders

10th Nov 2010 13:12

Despite Singer Capital Markets upgrading full year forecasts for Schroders by 3%, the broker is retaining its 'fair value' rating for the fund manager and highlights a preference for Aberdeen Asset Management.With a record level of inflows in the year to date, assets under management (AUM) for Schroders have reached a new high of £181.5bn, says the broker, compared with its forecast of £179bn.Asset management profits of £85.9bn were higher than Singer's £79m estimate, primarily due to performance fees which amounted to £7.7m in the third quarter, which the broker had estimated to be zero."We do not anticipate fourth quarter performance fees will meet the £28m booked in the fourth quarter last year", says the broker. "But nevertheless, tentatively assuming £10m for the fourth quarter, performance fees drive an upgrade to earnings".Singer upgrades earnings per share (EPS) by 3% from 93.9p to 96.6p due the higher level of performance fees. Higher AUM and "positive market movements" has pushed the broker to also upgrade 2011 EPS by 4%."The shares offer good gearing into rising equity market and we would expect the shares to continue to outperform if positive conditions persist"."However, the same exposure can be achieved more cheaply elsewhere in the sector and we continue to express a preference for Aberdeen which trades on 12.1 times 2011 calendar estimated EPS."The target price is upgraded to 1,560p, from 1,500p.