FTSE 250 stock Quilter (LSE: QLT) saw its share price fall 5% last week. The release of the company’s half-year results on the 10 August seemed to turn off some investors. A reported 12% decrease in total assets under management has shaken confidence in the wealth manager’s capabilities.
Yet the company has been heavily investing in long-term projects such as its Business Simplification programme. While inflationary pressures have undermined the UK’s financial sector this year, I think Quilter has good prospects for the long term.
With the share price having fallen 36% over the last year, I feel this FTSE 250 stock could be a rewarding buy at 114p. Let’s look at why I’d consider adding Quilter shares to my portfolio.
Quilter has been driving forward that Business Simplification programme. With results already flowing in, I’m bullish on the stock.
The programme aims to reorganise Quilter’s structure around its Affluent and High Net Worth platforms while re-engineering its property strategy. It has already brought in an annual run-rate saving of £13m. Total reduction in operating costs is estimated at around £45m by 2024.
However, management stated the initiative will cost roughly £55m. This has been primarily sourced from the sale of Quilter International in November 2021. The International platform brought in adjusted profit before tax of £29m in the first half of FY21. It’s concerning to see Quilter wave goodbye to these profits. Evidently however, the company’s priority is creating efficient operations back home. With such large cost reductions achieved, I’m willing to overlook the departure of Quilter International.
With the smplification programme well-funded, and already driving considerable cost reductions, returns from Quilter could improve.
A consistent dividend yield is one of the first features of a stock I look at. In the case of Quilter, a 5% dividend yield is a beaming green light to me. With regular payouts, I see it as an attractive long-term hold.
Management recently declared an interim dividend of 1.2p. This fell short of the 1.7p interim payout in 2021. However, rising inflation rates have hurt the UK’s financial sector this year. It’s understandable to me that a wealth manager such as Quilter takes a more conservative financial approach.
Net inflow from the Investment platform fell from £1.8bn to £1.6bn. This may make me question whether Quilter can deliver strong final dividends this year. However, operating margins increased 2%, thanks to expense reductions. Also, adjusted profits pre-tax increased 9% from £56m to £61m. Final dividends across FY19-21 were 3.5p-3.9p. I think, with increased profits and expense reductions, the company will be able to deliver somewhere in this range for FY22.
Clearly, Quilter has managed to weather the storm so far. The Business Simplification programme is achieving impressive reductions in operational costs and is set to go far further. Strong dividend yields indicate the company is proficient in its financial management. Because of this, I think the Quilter stock is no-brainer buy for me at 114p. At that price I really do see it as too cheap to miss. I’ll be looking to add some shares to my portfolio.
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Hamish Cassidy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.