Gresham House ups stake in Brooks Macdonald on takeover hopes

Gresham House’s Strategic Equity Capital trust, as well as its UK Multi Cap Income and UK Smaller Companies funds, have increased their allocation to Brooks Macdonald to 5.58%.

Gresham House Asset Management has upped its position in Brooks Macdonald on the view that the wealth firm’s weak share price will make it ripe for a takeover.

The asset manager now owns 5.6% of Brooks Macdonald’s shares – a stake worth around £18m – after passing the London Stock Exchange’s 3% disclosure threshold on 20 June.

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Brooks Macdonald’s share price has fallen nearly 7.8% in the past year to around 205p. The group’s relatively low valuation makes it a potential acquisition target in the view of Gresham UK equity manager Ken Wotton.

Among Gresham’s funds, the firm’s £159m alternative equity trust, Strategic Equity Capital, holds the largest proportion of the stock, with 3.6% of total voting rights in the wealth manager.

According to the trust’s March factsheet, Brooks Macdonald was its ninth-largest holding at the time, accounting for 6.1% of the portfolio.

Shares in the wealth firm also accounted for less than 3% of both the £428m LF Gresham House UK Muti Cap Income and £90m LF Gresham House UK Smaller Companies funds. It is the sixth top holding in the latter strategy, at 3.5% of the portfolio

According to Morningstar data, the wealth firm is popular with other fund managers.

It is weighted at over 2% in the Invesco UK Smaller Companies fund, and makes up more than 1.7% and 1.4% of the MI Chelverton UK Equity Growth and Fidelity UK Smaller Companies funds respectively.

Wotton said the firm favours Brooks as a high-quality business that is fundamentally undervalued.

‘It trades on a forward EV/Ebitda multiple of just over seven times,’ Wotton said. ‘That compares to Brewin Dolphin’s takeover by RBC at more than double this rating.

‘The wealth management sector is undergoing material consolidation with a number of well-funded trade and private equity buyers actively acquiring businesses, typically at multiples well into the teens.

‘In this context, Brooks – which is a business with national scale that has recently returned to underlying organic growth – looks vulnerable to an approach if the stock market continues to attach such a substantial valuation discount to it.’

At the beginning of the year, Wotton told Citywire’s Wealth Show podcast that he expected there would be a takeover ‘resurgence’ in the UK this year as London-listed stocks remain lowly rated versus global peers.

At the forefront of the takeover conversation were the investment management and financial advice sectors, following the wake of RBC’s £1.6bn takeover of Brewin Dolphin last year.

Wotton also holds wealth firms Mattioli Woods and Tatton Asset Management in multiple portfolios.

Source: CityWire

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