I've often bought shares through a broker but I haven't often considered buying shares in a broker. But following Brewin Dolphin's remarkably robust results recently, I thought it might be interesting to take a closer look at the stockbroking sector - and particularly at Brewin.
The last year has really been a game of two halves for the stock market, with the market in the doldrums for the first half of the year, and recovering fast (perhaps too fast for some of us!) in the second half. Brewin saw a 40% slide in profits at the interims, but recovery in H2 moderated this to just a 13% fall (before one-offs) in the year as a whole.
Over the last few years, Brewin has set out to expand its share of the wealth management market. It now has 40 offices, with a massive reach in what is now a consolidating sector. Though growth has slowed, with only 6 new teams in 2009 against 21 in 2008, it is still growing, and management has said Brewin still aims to hire more new teams [1] . At the same time, the company has maintained a strong investment banking offering, with over 100 corporate clients. This isn't a business which competes with Goldman Sachs or UBS - it's competing with fund management groups, online brokers, and corporate finance boutiques, in the main.
Brokers are having to transform themselves into more general wealth managers - the old private client broking model of looking for good stocks and putting a bit into gilts just doesn't work these days. There are tax issues to consider, wrappers such as ISAs and SIPPs to provide, and more compliance issues than there used to be. And of course if you can't provide more than just share dealing, well ETrade and iDealing and selftrade and many more can do that cheaper and more efficiently - so you either die, or reinvent yourself, which is what Brewin has been doing. And it seems to have been doing it pretty well.
Results for the year actually look pretty good considering what a dreadful time many banks and brokers have had. Operating profit, after profit share, was flat; however, a fall in net finance income (due to low interest rates) led to a 12.7% decline in pretax profit, before redundancy costs and a goodwill adjustment. That compares the a 21.6% fall…
