Schroders shares plunge over 13% after disappointing Q3 results, outflow warnings

Investing.com — Shares of Schroders (LON:) sank over 13% on Tuesday following its third-quarter trading update, which posted disappointing net flows across several key business segments. 

The results showed a continuation of challenges in attracting new investments, with net outflows recorded in both Private Assets and Wealth Management, leading to a net outflow of £2.3 billion overall. 

This stark decline fell short of analyst expectations, which had anticipated a modest inflow of £2.9 billion.

In terms of assets under management (AUM), Schroders reported a total of £777.4 billion, which was also below consensus estimates of £785.5 billion. 

Excluding joint ventures and associates, AUM came in at £663.8 billion, slightly better than RBC Capital Markets’ projection of £663.4 billion, but still short of the consensus forecast of £665.9 billion. 

The company did see an 8% year-on-year growth in AUM, driven primarily by positive market performance, but this was overshadowed by the outflows.

Schroders flagged about £10 billion in expected outflows in the fourth quarter, primarily attributed to losses from its Solutions and Institutional segments. 

The anticipated loss of an £8 billion mandate from the legacy Scottish Widows client is set to weigh heavily on the Solutions segment, in addition to around £2 billion in losses from three Institutional clients. 

Analysts at RBC Capital Markets noted that these factors contribute to a continuing negative sentiment surrounding Schroders, which is now grappling with a mix shift in its mutual fund offerings, although the company has yet to quantify the margin impact.

The incoming CEO, Richard Oldfield, emphasized the need for Schroders to adapt to the fast-changing market landscape, suggesting potential cost-cutting measures and a push for greater commercial discipline. He indicated that standing still is not an option, hinting at a future focus on efficiencies through simplification and improved execution. This approach may be formally outlined in the upcoming fiscal year results.

Analysts at J.P. Morgan said that the outflows in asset management reported for Q3, along with projected outflows for Q4, combined with a less favorable AUM mix, may exert downward pressure on management fee margins. 

This could lead to consensus earnings per share downgrades in the high single digits for 2024-25E, unless there is a more optimistic outlook regarding costs during the earnings call, the analysts said.