■ Funds under management are up
■ 95 per cent client retention rate
■ Well positioned for the Retail Distribution Review
The close relationship between clients and financial advisers continues to pay off for wealth management and life assurance group St James's Place (STJ). Its trading statement this month revealed that new investments in 2012 had reached £5.9bn, boosting funds under management by 22 per cent to £34.8bn. And even after taking redemptions into account, net inflows rose from £3.21bn to £3.35bn. Moreover, the previous year's £1.8bn negative investment return was transformed into a positive contribution of £3bn.
The group is also well positioned for the new trading environment following January's implementation of the Retail Distribution Review (RDR) rules, with over 2,000 of the group's own people fully qualified to the new diploma level. Customer loyalty remains high, too, with a 95 per cent retention rate for existing clients. Pension products attracted the greatest demand, with new single premiums rising 27 per cent to £2.37bn.
Total single investments last year rose 13 per cent to £5.87bn, while total new business on an annual premium equivalent (APE) basis increased 16 per cent to £743.3m. Business was especially brisk in the final quarter - new business on an APE basis grew 46 per cent to £223.8m.
UBS says...
Buy. Arguably the shares don't look cheap on conventional metrics - with a PE ratio of 18.5 on an IFRS basis against a sector average rating of 11.6. However, we think that these premium multiples are warranted by the sustainable business model and growth momentum. Moreover, the PE ratio, on an embedded value basis, of 6.7 represents a significant discount to the 8.3 sector average. We also calculate that the 16.7 per cent return on embedded value warrants fair value, on a dividend discount model-based valuation basis, in excess of 600p a share. Expect EPS of 18.83p for end-2012, rising to 24.43p in 2013.
Numis Securities says...
Add. With the shares trading on around 0.9 times 2013's forecast embedded value, we think there's little scope for a re-rating. However, there is still the potential for reasonably positive shareholder returns - assuming the current rating is held - given the expected embedded value growth of 15 per cent and 12 per cent for 2013 and 2014, respectively, and a prospective yield of 3 per cent and 3.7 per cent. This offers reasonable - if not exceptional - value, and we therefore upgrade from hold to add. We would need to see re-rating potential as well as decent NAV growth and an attractive yield to rate the stock a buy. We expect operating profit of £373m for end-2012, with EPS of 21.4p.
