Broker snap: Strong 2010 expected at Schroders

4th Feb 2011 13:17

RBS expects Schroders to report another strong result for 2010, and given its undemanding valuation and strong balance sheet, the broker says that the fund manager remains a key 'buy'.For the year ended 31 December, RBS forecasts a revenue of £1.15bn compared with £0.75bn in 2009, and an operating profit of £391m, up 106% year-on-year. Funds under management are expected to be up 6.2% since September.Due to modest earnings per share upgrades, the broker increases its target price from 1,836p to 2,100p, implying a 2011 "cash-adjusted price-to-earnings multiple of 15, which is what we regard as the mid-cycle margin for the asset management sector."RBS highlights three key reasons for its positive stance on the stock: 1) its organic annualised fund flows "vastly superior to the sector average"; 2) its strong balance sheet "with free cash of £718m"; and 3) an undemanding valuation "of 12.8 times 2011 forecasted earnings below the mid-cycle sector average of 15 times".