St James’s Place (SJP) once again exceeded expectations with another round of bumper results in Q3, and many are tipping further growth as the firm exploits a growing ‘advice gap’.
The restricted advisory firm continued its upward ascent in the third quarter with £1 billion net inflows, bringing total assets up to an all-time high of £41.8 billion, a 20% increase over the year.
New business single investments were up 27% to £1.7 billion and the figure on an annual premium equivalent basis, a method of standardising sales, was 23% higher at £203.9 million. Within this, the share of new business shifted from pension products toward higher margin investment products.
Although some expected the introduction of the retail distribution review (RDR) and the transparency it enforced on charges to put the brakes on the company’s momentum, if anything the regulation has been a boon. But with the share price at 668p, up almost 60% since the beginning of the year, can St James’s Place sustain the momentum its investors have become accustomed to?
Colin Morton, who runs the Franklin UK Managers Focus and UK Equity Income funds, believes it can.
He said the business is helping to alleviate a post-RDR advice gap and expects its presence in the sub-£500,000 client bracket – where banks and investment managers have been withdrawing – will drive growth further from here.
‘They are very well positioned at the moment. More of the larger organisations are withdrawing from running money for individuals with under a quarter or a half of a million. There is underlying growth because more people want to look after their money and generate returns on their savings,’ he said.
‘This is a growth area in itself and on top of this situation the typical competitors of St James’s Place in years past are not involved in the market any more.’
After the company posted growth of 20% for the past year, he says investors need to be prepared that this is likely to slow, however.
‘I think it is going to be slower growth than it has been, but still healthy growth. It may not be 20% but could be 10-15% over the next few years. There is a decent outlook ahead of them and it is difficult to see massive issues and difficulties picking up business over the next few years,’ he said.
Nonetheless, he says the theme of long-term savings acts as a structural growth story, while the prospect of continued strength in equity markets could also provide a boost over the short term.
His sentiments are echoed by Julian Chillingworth, who holds SJP in his Rathbone Recovery fund.
‘The area they are going to target is where there has been a fallout from the banks. There are a number of people that would have sought advice from the banks in the past who will be natural customers,’ he said.
There remains a danger that SJP could see its margins squeezed from next year however, when new rules for investment platforms, described as ‘RDR II’, come into force.
‘I think we are all well aware that with increased regulation and pressure on product pricing, margins will always be keenly fought over. They might see margin pressure, but their margins are good and they have surprised everyone by maintaining margins,’ Chillingworth said.
Morton also acknowledges he previously had concerns that SJP’s charges could come under pressure, but having survived the first year of the RDR with little pressure, he is relatively upbeat.
‘There is enough growth in the industry generally to offset the fact we have some pressure on pricing and we will continue to have that pressure on pricing, but the power in this industry is with the person who controls the client and that’s the strength of SJP,’ he said.
Source: Citywire. Read full article here.
