Schroders’ [SDR] share price has been flailing so far in 2020. The UK asset management firm's stock has dropped 12.95% year-to-date (through 10 August’s close).
Although Schroders’ share price rose slightly following its H1 earnings call on 29 July — climbing 2.4% between the 31 July and 3 August — it has since seen those gains disappear.
The company has been battered by the uncertainty and headwinds triggered by the coronavirus pandemic. As of 10 August’s close, Schroders’ share price was 2,950p — a 14.86% decrease on its 52-week high of 3,465p.
Why has Schroders’ share price been performing poorly, and what did its first-half results show?
The ups and downs of pandemic asset management
Schroders reported overall net inflows of £38.1bn when it announced its first half-year results. Pre-tax profit was down nearly 12% year-on-year from £319.3m to £280m, while net operating revenue slipped 2% to £971.6m from £993.3m the year before. Net income fell 3% year-on-year from £1.03bn to £1bn. These reductions go some way to explaining the struggle Schroders’ share price has had to recover its pre-coronavirus highs.
Schroders' H1 pre-tax profits - a 12% YoY decline
CFO Richard Keers described Schroders’ performance as “a robust set of results delivered against the extraordinary backdrop.”
Building on Keers’ comments, CEO Peter Harrison added that market volatility had reduced in Q2 compared to the previous quarter, although there is still uncertainty ahead. The extent of this uncertainty will be dictated by the “effectiveness of containment measures taken by governments”. While this potential for volatility exists, Schroders’ share price is unlikely to break out.
A case in point is the company's Personal Wealth division, the net inflows of which dropped to £100m for H1 as a result of high-street bank branches being closed.
As branches start to reopen, personal wealth management is unlikely to be a priority as skeleton staff will probably have to prioritise other key tasks. For this reason, Harrison expects client referrals to be impacted in the short term, but says the “underlying growth story remains unchanged” for the long term.
“The long-term is very bullish. But short-term, it’s just hard to understand consumer behaviour,” he said.
“The long-term is very bullish. But short-term, it’s just hard to understand consumer behaviour” - Schroders' CEO Peter Harrison
Assets in its Asset Management business rose a little over 6% to £460.1m between 1 January 2020 and 30 June 2020, while asset management net flows were £36.8bn. Asset management net revenue was £801.5m, down 2.9% compared to H1 2019, and pre-tax profit fell 11% to £260.3m.
Although the rise in assets can be considered a positive influence on Schroders’ share price, Jefferies analysts Tom Mills, Martin Price and Julian Roberts wrote that there is still pressure on the balance sheet.
“Good cost control and positive AUM movement have not been able to make up for margin compression,” they said.
Schroders' asset management net revenue - a 29% YoY decline
Strong growth areas
According to AJ Bell investment analyst Russ Mould, Schroders’ share price has been well-placed to navigate the choppy waters of the pandemic thanks to the asset manager’s diversified product line.
This puts in in contrast with competitors like emerging markets specialists Ashmore [ASHM], Portfolio Adviser reported, the share price of which is down more than 20% since the start of the year.
In fact, Schroders’ share price has performed slightly better than the wider FTSE 100 index so far this year, which is down just over 20% to 7 August.
Schroders will also have been buoyed by the fact that private assets and areas such as real estate, infrastructure and private equity haven’t been hit as badly as the likes of personal wealth flow. It reported ongoing client demand for its private asset strategy.
Wealth management was a strong area of growth, seeing net inflows of £1.3bn.
While Harrison acknowledges that there are some short-term risks going forward, he is confident that the firm will continue to generate and deliver long-term value for both clients and shareholders.
Nevertheless, muted inflows and heavy outflows, coupled with the impact this could have on the balance sheet, means that investors are somewhat wary of buying the stock.
According to MarketBeat, 11 Wall Street analysts currently hold ratings on Schroders. Of these, seven are a Hold and the other four a Sell. The consensus target for Schroders’ share price is 2,730.44p, a 7.4% downside on 10 August's closing price.
|PE ratio (TTM)||18.67|
|Quarterly Rervenue Growth (YoY)||-3.7%|
Schroders share price vitals, Yahoo Finance. 11 August 2020