Thursday 17 October 2019 12:10 pm

Rathbone Brothers' shares fall as it warns on tighter profit margin

Shares in Rathbone Brothers fell sharply this morning after reporting its profit margin will narrow over the next two-to-three years.

Shares in the investment management company were down 8 percent to 2,190p in the morning’s trading, despite an 11 per cent annual increase in third quarter operating income.

Read more: Rathbone Brothers boosts profits but warns of Brexit impact

Underlying operating income totalled £86.3m for the quarter, with £76.7m of this coming from its investment management dealings.

The company also reported today it had increased funds under management and administration by 4.5 per cent to £49.4bn.

However, Rathbones said it plans to invest heavily over the next two-to-three years in order to “enhance organic growth”, which will drive down operating margins in the short-term.

Its 2018 operating margin was 29.4 per cent.

“During this time, we believe it is appropriate to operate the business closer to a mid-twenties underlying operating margin to enable us to create long term growth opportunities, improve client services and deliver productivity gains,” the report read.

Rathbones’ chief executive Paul Stockton said: “In difficult markets we continue to focus on providing a quality service to our clients, navigating through ongoing market uncertainty but also selectively investing to pursue organic growth opportunities and develop our business.”

Gross organic inflows in investment management were £0.8bn, matching last year’s Q3 figure.

Total net outflows were £0.2bn, after recording total net inflows of £6.9bn in 2018 after acquiring Speirs & Jeffrey.

Read more: Rathbone Brothers inflows up after Speirs and Jeffrey acquisition

The company said this “reflected ongoing weak investor sentiment and investment manager departures”.

“Both factors, together with anticipated outflows from short term discretionary mandates, are expected to continue to weigh on net growth in FUMA into 2020,” the report read.