FTSE 350 Review: Financial services companies still impacted by high rates

Members of the FTSE 350's financial services sector have few of the common characteristics shared by those in of adjacent groupings such as banks, insurers and traditional asset managers. As such, their fortunes for 2024 can only be assessed on a case-by-case basis. 

To take trading platform Plus500 (PLUS) as an example, a shortage of market volatility in recent times has clearly not helped the business, but the average deposits per customer of $5,250 (£4,140) were 18 per cent higher quarter on quarter in the three months to 30 September. In other words, while user numbers are largely flat prior to what was likely a better fourth quarter, those who stick with Plus500’s services are using it more; around 55 per cent of the company’s revenues are generated by over-the-counter trading.

But there are some factors that will have a big impact on all asset gatherers. The general flow of investor funds into financial services depends on expectations for the future direction of interest rates, rather than the popularity of individual asset classes. For example, companies such as Bridgepoint (BPT), with €39.5bn (£33.7bn) in assets, is a bellwether for the direction of private asset markets. The private equity side is likely to stay shuttered for at least the first half of the year, and perhaps longer if interest rates remain stubbornly high. Private equity managers, who typically earn a third of their income from performance fees related to buyouts or IPOs, have struggled to generate traction as a dearth of buyers leaves assets stuck on the books.

However, private credit markets, in which Bridgepoint also invests, should remain buoyant if companies find ways to refinance the wall of debt maturing over the next few years. Still, should the prospect of rate cuts fade if inflation rates remain stubbornly high this year, the awkward financing loop and the lack of exit strategies for companies is likely to weigh on Bridgepoint and fellow private asset investors such as Petershill (PHLL).

Another company in the sector has continued undimmed: JTC (JTC), which provides administration, reporting and compliance services to investment businesses, had another healthy year both operationally and in terms of its share price. But its valuation is up with events and it must now bed in recent acquisitions.