Sell Rating Maintained as Earnings Beat Masks Structural Growth and Efficiency Concerns

Analyst Marina Massuti of Morgan Stanley maintained a Sell rating on Schroders, retaining the price target of p360.00.

Marina Massuti has given his Sell rating due to a combination of factors that temper the otherwise solid set of pre-released FY25 numbers. While operating profit and net operating income are set to come in notably ahead of market expectations, this outperformance is being driven largely by supportive markets, improved fee margins and performance fees rather than a clear structural acceleration in the underlying franchise. Operating costs are essentially flat year-on-year and slightly above consensus, and although management is bringing forward elements of its cost-saving plan, the cost-to-income ratio remains elevated, indicating limited operating leverage at this stage.

Marina Massuti’s rating is based on concerns that the growth profile in key strategic areas is not yet fully aligned with Schroders’ own medium-term targets. Group AuM is modestly ahead of expectations, but the flow dynamics are mixed: public markets and Schroders Capital are contributing positively, yet the wealth segment continues to underperform with net new money growth of around 3%, below the 5–7% ambition. This imbalance, together with still-high efficiency ratios, suggests that the current valuation already discounts much of the near-term improvement, leaving a less attractive risk/reward skew in spite of the likely positive short-term share price reaction to the earnings beat.

Based on the recent corporate insider activity of 15 insiders, corporate insider sentiment is negative on the stock. This means that over the past quarter there has been an increase of insiders selling their shares of SDR in relation to earlier this year.