AJ Bell defies economic gloom in 2022

According to the chief executive of AJ Bell (AJB), Michael Summersgill, the cost of living crisis is already impacting the company’s customers – and their willingness to invest via its platforms. 

“In the final quarter, which is typically quieter, we experienced a slowdown in new contributions from customers as disposable incomes were squeezed across UK households,” he said following the release of the firm’s full-year results. 

Household savings are now falling back toward the levels seen before the pandemic and AJ Bell’s direct-to-consumer (D2C) customers (those investing directly via the company’s website or app) are likely to feel this most acutely. These customers tend to have lower levels of accumulated wealth and investable income than those who make use of the platform via their financial adviser.

Though uncertain times lie ahead, the company’s top-line figures for 2022 look solid. Both revenue and pre-tax profits grew in the 12 months to the end of September, and customer numbers increased by almost 58,000 to 440,589. Meanwhile, pre-tax profit margins were down slightly to 35.6 per cent from 37.8 per cent last year, which management said reflects “planned investments in new propositions, Dodl and Touch”. 

The latter product, an app dubbed a “simple platform proposition for financial advisers”, is due to launch next year. Dodl, a D2C product aimed at a younger and less experienced generation of investors, was released in April. Existing shareholders will also be pleased to see that AJ Bell’s dividend is due to rise for the third year in a row.

But beneath these growing customer figures and expanded digital offerings, it’s clear that trouble is on the horizon – at least in the short term.

Net inflows of customer assets fell to £5.8bn from £7bn last year. Assets under management in its platform business also fell 2 per cent to £64bn as the result of adverse market movements of 11 per cent. 

Analysts at broker Liberum noted that AJ Bell trades at a premium to the rest of the listed investment platforms on a forward price-to-earnings multiple of 26.1x versus the sector average of 20.

“We feel this is justified given the higher-than-sector average earnings growth, excellent track record of customer growth, potential upside from further interest rate rises and potential to maintain, if not raise, revenue margins in the future,” they wrote in a note. While the company’s performance was impressive in the circumstances, we’re content to wait until the economic hit to customers has been fully realised. Hold. 

Last IC view: Hold, 26 May 2022