Mark Gilbert is a Bloomberg Gadfly columnist covering asset management. He previously was a Bloomberg View columnist, and prior to that the London bureau chief for Bloomberg News. He is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”

Rathbone Brothers Plc is unloved by the analysts that cover the company. Investors disagree.

Rathbone's announcement that it's in talks to merge with closely held Smith & Williamson Group Holdings Ltd. gave the shares a bump on Monday, extending the stock's gain this year to more than 40 percent. The gap between the share price and the 12-month consensus analyst forecast has widened.

Mind the Gap
Not one of the eleven analyst that cover Rathbone rate its shares worth buying
Source: Bloomberg

The deal is the latest effort at consolidation in the asset management industry: traditional firms are trying to squeeze costs as the rise of index-tracking funds drives down fee income.

Of the eleven analysts that cover Rathbone, 10 rate it a "hold" while one has it as a "sell." The lone bear, brokerage firm N+1 Singer, reckons the combined company should be able to integrate infrastructure and exploit geographical overlaps to cut costs, but warns that it needs to avoid disrupting its service to clients while doing so.

Bulking up makes sense in the current climate. Rathbone oversees about 37 billion pounds ($48 billion), while Smith & Williamson manages about 19 billion pounds for wealthy individuals and corporate clients.

And Rathbone isn't just trading higher than the consensus forecast. The current share price is higher than the individual target price of every analyst that covers the company, according to Bloomberg data. Time for a re-rating?

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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