St James’s Place gets on top of costs

Results for St James’s Place (STJ) are never the easiest to unpick as the company’s joint-pension life and investment advisory business means the balance sheet does not really dovetail on a cash basis. Furthermore, there is no clear linear relationship between expenses and the gross inflow of new business – all of which can make assessing the company’s operating performance problematic. However, there were signs in these results that at least some of management’s plan to boost earnings over the next few years is starting to bear fruit.

To begin with, controllable expenses seem be in line with the 5 per cent annual increase that management had targeted. These were £265m for the year, compared with £251m in 2020, most of the increase was due to investment in the company’s core business systems. A generally favourable investment environment meant that funds under management increased by 27 per cent, driving the 10 per cent increase in net management fees to £503m.

The defining feature of the company is the famously 'sticky' nature of its clientele – the average customer stays with a St James’s Place advisor for 15 years, five years longer than the average for the rest of the industry. This retention rate has long baffled many observers as the company is well known for the expensive nature of its services. While those familiar with DIY investment platforms can only wonder, there are clearly many investors who value personally directed financial advice at a cost. Broker Berenberg forecasts a forward adjusted PE ratio for 2022 of 18, which is middle ground for the industry, although how the shares will perform in choppier markets is unclear. Hold.

Last IC View: Hold, 1,234p, 25 Feb 2021