Rathbones reaps rewards of full integration of its Investec merger

The 2025 financial year has started in a strong position for private wealth management group, Rathbones, after the integration of its Investec Wealth & Investment (IW&I) merger.

Reporting the first full year figures to include IW&I’s contribution since it joined the group in September 2023, in a deal valuing IW&I at £839m, Rathbones revealed sharp increases in both operating income and pre-tax profits.

The figures for the year to December 31, 2024 showed an operating income of £859.9m, against £571.1m in 2023, and a pre-tax profit of £99.6m, compared with £57.6m the previous year.

The group, which has a key operation at the Port of Liverpool Building, achieved £109.2bn of funds under management and administration (FUMA) – including £43bn from IW&I – up from £105.3bn previously.

Underlying profit before tax increased 79.1% to £227.6m. The hike in pre-tax profits reflected the acquisition and integration costs related to the combination with IW&I, along with higher amortisation charges following the transaction.

Shareholders will enjoy an enhanced dividend following the progress during 2024.

In July, the group announced an interim dividend of 30p. It said today that, given the strength of its balance sheet and its confidence in the long term future of the business, the board has recommended a final dividend of 63p per share for 2024, compared with 24p in 2023.

This brings the total dividend for the year to 93p, against 87p in 2023, representing a 6.9% increase.

Rathbones said it has delivered cost and revenue synergies well ahead of its first year £15m target, with run-rate synergy realisation of £30.1m at the end of 2024.

This was largely due to organisational changes and its property consolidation programme being secured ahead of the planned timeframe.

The Rathbones and IW&I combination made significant progress in 2024, the group reported.

The client consent process is nearly complete, and Rathbones expects to migrate almost all c. 55,000 IW&I clients by the end of the first half.

To date, 0.3% have declined to migrate to Rathbones, and the group expects a small proportion of relationships to leave, where a suitable proposition is not available.

Looking ahead, the group said it is making good progress towards delivering an underlying operating margin of 30% from September 2026, notwithstanding the additional headwinds that have arisen since this target was set, which include ongoing inflationary pressures and the estimated impact of National insurance Contributions from April 2025.

This margin growth will be underpinned by a combination of modest market growth in line with inflation, a return to organic net inflows, supported by growth in advice, refreshed marketing and distribution capabilities and growth in the asset management business, ongoing cost discipline, in what the group expects to be a more normalised inflationary environment and synergy delivery in line with guidance.

Rathbones said it expects the improvement in the underlying operating margin to arise mostly during 2026, with a more modest improvement in 2025.

This principally reflects the timing of further synergy benefits, which will be weighted towards the second half of the 2025 financial year, when the cost savings which are linked to the migration to a single operating platform will materialise and it works towards IW&I ceasing to run as a separate, regulated entity.

Paul Stockton

Chief executive, Paul Stockton, said: “2024 has been a very exciting year for the group as we began in earnest to bring Rathbones and IW&I together as one combined business committed to helping our clients achieve their longer term financial goals.

“In an eventful year, we attracted record gross inflows by leveraging our enlarged platform, grew underlying operating margin, exceeded the 2024 synergy targets we set out for the IW&I combination, and increased our dividend by 6.9%.

“Throughout the year, we have continued to improve our services and investment processes, taking advantage of the best that the Rathbones and IW&I teams have to offer.

“The combination creates some significant future growth opportunities and provides a pathway to greater innovation as ideas are shared and acted upon.”

He added: “I am grateful for the efforts of all teams around the group who have helped us start 2025 in such a strong position.

“Rathbones remains well-equipped to navigate the challenges associated with industry change and the potential impacts of geopolitical instability on investment markets.

“Alongside initiatives to enhance our services to clients and improve organic growth rates, our priorities for 2025 include completing the migration of IW&I clients and fully integrating our businesses onto one platform.”

Shares in Rathbones fell when the market opened this morning from an opening price of 1,702.22p per share to 1,699.14p, but quickly rallied to 1,708.00p.

A research note by investment bank Panmure Liberum recommends investors to Hold their Rathbones shares after today’s results.

It said: “Rathbones is not expensive, the current year PER is 10x and the yield approaching six per cent, but it remains a more difficult investment case than many others in the wealth sector.

“The company hopes to accelerate organic growth in 2025 – it will continue to deliver synergies from the IW&I deal and has floated the idea of a return of surplus capital in due course, but the target of a 30% operating margin will not be realised until 2027E, by which time much may have changed.

“In the meantime, it is easier to see the value in St James’s Place or Brooks Macdonald.”

The note added: “Rathbones has delivered on the early promise of cost synergies, but to really deliver on the promise of the IW&I deal there needs to be clear evidence that net new business can be won and indeed won at a greater rate than the constituent parts were achieving previously.

“Achieving the operating margin target only through cost cutting will not make Rathbones a more interesting investment case, while history has also shown that margin targets have a habit of slipping.

“The shares arguably discount the risks already, the rating is modest enough, but evidence of growth is needed to spark a more positive rating.”

Shares in Rathbone closed last night at 1,698p per share. Panmure Liberum has a 1,980p per share price target.