Jefferies initiates coverage on 2 wealth management companies; stocks surge up to 5%
The global brokerage believes wealth managers are well-placed to ride on India's economic growth and financialization of savings, especially in capital markets. Leading players will benefit from strong inflows and operational efficiencies to deliver 20-22% profit CAGR over FY24-27E. A rise in the share of trail fees (70-75% by FY27E) improves earning visibility and supports valuation re-rating
Shares of on Tuesday jumped 5.3% to Rs 5,305 on BSE after global brokerage initiated coverage on the stock with a buy rating and target price of Rs 6,000. The brokerage has also initiated coverage on another wealth management firm 360 ONE, with a target price of Rs 900."We believe Indian Wealth Managers (IWMs) are well-placed to ride on India's economic growth and financialization of savings, especially into capital markets. Leading players will benefit from strong inflows and operational efficiencies to deliver 20-22% profit CAGR over FY24-27E. Rise in share of trail fees (70-75% by FY27E) improves earning visibility and supports valuation re-rating," Jefferies analysts Jayant Kharote and Prakhar Sharma said in a note.
Nuvama Wealth
Wealth contributes about 60% of revenues (UHNI 25% & HNI 35%), with investment banking (22%), custody services (18%), and a nascent AMC.
"Management is investing in wealth franchise build-out (RM network to double over FY23-27E), and we expect AUM/PBT CAGR of 22%/20% resp. over FY24-27E. A high base of IB can drag consolidated earnings (17% CAGR). We use dividend discount model (DDM) and arrive at a price target of Rs 6,000 (implied P/E of 24x Jun-26E)," Jefferies said.
"Nuvama's valuation discount is driven by a lower mix of Wealth/ARR, and we expect the steady improvement in business mix to drive re-rating for the stock over the medium-term, however, near-term upside can be limited after the recent run-up," it said.
The stock surged to the day’s high of Rs 5,377 in reaction to the report.
360 ONE
360 ONE is the largest IWM with a UHNI focus and a leading asset manager in private markets.
“Over FY24-27, network expansion, and growing client vintage should drive 25% CAGR in active AUM of wealth business. AMC is entering a PE fundraising cycle as large maturities approach and should deliver a 20% AUM CAGR. Despite some pressure on fees, operational leverage will drive a consolidated C/I ratio improvement of > 400 bps over the next three years and deliver a Profit Before Tax (PBT) CAGR of 22%. We value the firm using DDM and arrive at a price target of Rs 900 (+26% upside).” added Jefferies.
However, the stock did not react to the report, making a high of Rs 747 and then trading flatly through the day after a slight decline.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)
Source: Stocks-Markets-Economic Times
