Talks with BNP Paribas help drive Evolution Group shares up by 8%

Published on Monday 18 July 2011 22:32

Shares in Evolution Group rose yesterday after it said its wealth management arm, Williams de Broe, was in "advanced discussions" to buy part of French bank BNP Paribas.

Evolution said it was in talks to buy BNP Paribas Private Investment Management, which is the UK-centred descendant of the former Fortis Private Investment Management business once headed by Williams de Broe chief executive Phillip Howell.

Evolution is looking to develop its wealth management business following a poor performance from its investment banking division last year.

Williams de Broe, which has offices in Edinburgh, is likely to be a key part of that strategy after growing its funds under management to nearly 6 billion.

Analysts said the acquisition could boost Williams de Broe's operating margin significantly by increasing economies of scale.

Sarah Spikes, an analyst at RBC Capital Markets, said the acquisition could add 5.5 million a year to the company's profits, adding that Williams de Broe was at a "crucial stage of its development" and its value could rocket if it increased the funds it managed.

She said that last year Williams de Broe achieved an 18 per cent operating margin, but that could increase to 30 per cent if it reached 10bn of funds.

That could make the wealth manager worth 300m, compared to the current 150m market value of the entire Evolution Group.

"Were this acquisition to happen it would bring that significantly closer," Spikes said. The BNP Paribas business has about 1.7bn under management.

She added that it would likely be a "low risk integration" thanks to Howell's familiarity with the business, and that Evolution was known for buying assets "inexpensively".

Peel Hunt analyst Henry Biddle said that although details of the potential deal had not been released, "it would appear strategically a good move".

He added that at present, he expected Williams de Broe to make 11.4m in operating profit this year, up from 5.5m last year and a small loss in 2009.

Biddle forecast that wealth management would make up 52 per cent of Evolution's revenue in 2011, up from 47 per cent last year, when private client income came in at 51.5m. He said an acquisition would further shift the mix of earnings away from Evolution's securities business.

In a short statement to the stock exchange, Evolution said it would not comment further on the talks "until an agreement is reached or the discussions are terminated".

Evolution has around 90m in cash which could help fund the takeover.

The company reduced jobs in its Evolution Securities investment banking business by 20 per cent to 200 in its last financial year, after what it called "incredibly tough market conditions" contributed to the division making an adjusted operating loss of 3.1m.

Shares closed 8 per cent higher at 72p.