Broker snap: UBS upgrades Schroders as headwinds reduce

8th Mar 2013 09:06

UBS has upgraded its rating for asset management firm Schroders from 'sell' to 'neutral' and hiked its target price from 1,700p to 2,050p, saying that the company as 'strong momentum' now that headwinds are starting to come off.Following the group's full-year results on Thursday, Nomura said that most of the headwinds it saw three to six months ago are "reducing materially":"1) Performance has improved with 71% of funds outperforming benchmark over three years and 78% over one year (versus 66% and 50%, respectively, in June 2012); 2) management are indicating that asset pricing has improved increasing the risk of a material earnings accretive acquisition; 3) relief in management fee margin in FY13 (more favourable mix from equity and retail); 4) good outlook on flows and strong start in 2013, with retail equity picking up".UBS said it expects management fees to reduce by 15% in UK and European retail over the medium term due to increased regulation, transparency on fees, competition from passive products and concentration of distribution.Nevertheless, it has raised its forecasts for Schroders by 12% and 11% for 2013 and 2014, respectively, due to a higher level of assets under management and a more favourable mix of assets.Shares were up 2.0% at 2,127.65p by 09:39 on Friday.BC