LONDON -- Shares in asset-management specialist Schroders (SDR 0.05%) have strode consistently higher since last summer, gaining almost 29% in the year to date and striking recent all-time highs of 2,212 pence in the process.
In my opinion, Schroders offers great value for investors seeking robust earnings growth and an increasingly remunerative dividend policy, which I believe should drive the shares still higher in the near future.
Managed assets strike record in 2012
Schroders announced last month that net revenues slipped 3% to 1 billion pounds during 2012, exacerbated by a 17% drop in turnover at the firm's Private Banking division. This shortfall helped push pre-tax profits 12% lower to 360 million pounds.
However, the blue chip continued to witness surging activity last year, helped by its diversification across a multitude of asset classes and products. In fact, Schroders saw new net business inflows leap to 9.4 billion pounds last year, rocketing up from 3.2 billion pounds in 2011. And this pushed assets under management to record levels, at 212 billion pounds, up more than 13% on the previous year.
And I believe the firm's strong balance sheet could help drive M&A activity to supplement sparkling organic growth. Last month the group announced plans to acquire fellow City institution Cazenove Capital for 424 million pounds, which was followed by the purchase of US fixed-income manager STW Fixed Income Management at the start of April.
Earnings expected to shoot higher
Schroders saw earnings per share (EPS) slip 10% in 2012, although City forecasters expect EPS to snap back into double-digit growth from this year. An 18% advance is anticipated in 2013, to 123 pence per share, with an additional 16% rise next year to 143 pence per share currently expected.
The company trades on P/E ratings of 17.5 and 15 for 2013 and 2014 respectively, thereby providing a decent discount to a forward earnings multiple of 20.3 for the entire financial services sector. Indeed, Schroders' position as an attractive value stock is borne out by price/earnings to growth (PEG) levels of 1 and 0.9 for this year and next -- a sub-1 reading is generally regarded as bargain territory.
A solid dividend play
As well as stellar growth potential, Schroders offers investors the opportunity to boost their dividend income. The company kept its full-year dividend on hold at 31 pence per share despite hefty earnings pressure in both 2008 and 2009, and responded to last year's earnings setback by lifting the payout more than 10% to 43 pence per share.
And analysts expect the dividend to keep growing, with payouts of 49.2 pence per share and 55 pence per share projected.
The dividend yield is currently below the prospective average of 3.3% for Britain's 100 largest-listed companies, at 2.3% and 2.6% for 2013 and 2014 respectively. However, dividend coverage of 2.5 times and 2.6 times forward earnings for these years is well above the widely regarded safety buffer of 2 times.
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