Investment Column: Schroders emerges from the 'dark days'

For free real time breaking news alerts sent straight to your inbox sign up to our breaking news emails

Sign up to our free breaking news emails

Please enter a valid email address

Please enter a valid email address

SIGN UP

I would like to be emailed about offers, events and updates from The Independent. Read our privacy policy

Our view: Buy

Share price: 996.5p (+33.5p)

Schroders, the investment management group, was founded in 1804 and in that time has had its fair share of ups and downs.

The message coming from current chief executive Michael Dobson is that the dark days of February and March are behind the group, and as long as market conditions keep gradually improving, Schroders is in for a fine time.

Despite the top line looking a bit weak – the group posted its first-half numbers yesterday, saying that profits were down to £76.9m, from £173.3m last year, hit by writedowns of £40.6m – the profit numbers were ahead of what most analysts predicted. Mr Dobson, unsurprisingly, urges investors to consider the impressive inflows from both retail and institutional investors.

We would agree that things have certainly improved for Schroders and, unlike in the past when we have been rather sceptical about how well the group can perform in nervous markets, we would be inclined to back the group to improve steadily.

A number of investors have already recognised the improvement and the shares are up by more than 20 per cent in the last three months. While others say that the improvement means that Schroders is now fairly valued, the watchers at UBS argue that, "based on likely new consensus estimates, Schroders would be trading on a 2010 enterprise value to Ebitda of about nine times, which would be a 17 per cent discount to peers".

There is, of course, plenty of risk still in the financial markets, something Mr Dobson points to with particular reference to the amount of leverage that will need to be refinanced in the coming years. However, we think that Schroders is at least as well placed as other asset managers to cope, and that it should be able to make hay in the meantime. Caution is still needed, but we would now be backers of Schroders stock. Buy.

RSA Insurance Group

Our view: Buy

Share price: 126.8p (-3.2p)

Insurers have not been flavour of the month with investors for some time. An example in point is RSA, formally Royal & SunAlliance, which runs More Than insurance in the UK. While the shares of companies in other sectors have mostly risen strongly in the last six months, the RSA's share price has struggled and is down nearly 5 per cent.

The company's investors got a fillip yesterday, however, when the group hiked its dividend by 7 per cent, arguing the move underlines the group's confidence.

In fairness to RSA, there are reasons to be cheerful. The group is well spread with operations in a number of lucrative emerging markets, which is helping to offset the miserable performance of the UK non-life insurance market. Moreover, yesterday's half-year results, which showed operating profits falling to £392m from £440m last year, were actually better than most industry experts had expected.

The chief executive Andy Haste argues that the group is confident about the future (clearly evidenced by the dividend hike), its balance sheet is in tip-top condition and the group has worked hard to allocate capital and manage costs.

We would broadly agree, and the increase in dividend is clearly seductive for punters. Indeed, we would be backers of the group on the strength of the increased payment to investors.

Without that, the shares look a little lacklustre, especially with Mr Haste conceding that the market is still challenging.

Analysts at the group's two house brokers Merrill Lynch and Cazenove argue that investors should be "overweight" on the stock, indicating that it trades at a discount to the sector. We would put little store by the performance of the shares, but the group is confident and the dividend increase is welcomed. Buy.

Cobham

Our view: Hold

Share price: 187.4p (+8.9p)

On paper, defence and aerospace electronics group Cobham is a strong buy.

Not only is the company performing well – yesterday it said that underlying profits in the first half of the year were up 32 per cent to £141m and the interim dividend jumped 10 per cent – the shares, trading on a price-earnings ratio of 10.2 times, are at a 30 per cent discount to average levels, according to watchers at Numis.

There is one big problem, however. While the rest of the equity market has been on a march in recent months, Cobham's shares have actually fallen by 15.7 per cent in the six months before yesterday's announcement, despite the group's stated prediction of high single-digit growth over the medium term. The outgoing chief executive, Allan Cook, says the fall is due to investors looking for cyclical stocks, which is something we see continuing for some time. Hold.