Business Overview
St. James's Place Plc (LON: STJ) offers wealth management and investment funds management services. Wealth management includes mortgages, investment planning, wills, philanthropy, estate planning, and retirement planning. Investment funds include pension funds, life funds, Spanish international funds, unit trust group funds, Asia international funds, and international funds. It offers products and services through branch offices, wealth advisors, and online portals to high net worth individuals, wealthy families, and corporates in the UK and Asian region. The group’s products and services portfolio includes Investment Management Approach, Investment, Retirement, Protection, Intergenerational wealth management, Banking and mortgages, Advice for businesses, Tax year-end, Private Clients and Advice for NHS employees. The company’s partners are leading financial professionals, and they invest in their professional development; as a result, the group takes guarantee of the advice given by member related to any products or services.

The current Chair is Iain Cornish and was appointed on October 2018. Andrew Croft holds the responsibilities of the Chief Executive Officer. He was appointed as CEO on January 2018. Craig Gentle is the current Chief Financial Officer and joined the company in the year 2016.

Key Statistics



Top Shareholders

 

Market Overview

As per the estimates from Global Data, there are over 11 million individuals with investable assets between GBP 50,000 to GBP 5 million in the United Kingdom. This segment of the market is expected to control investable assets of around GBP 2.5 trillion by the year 2023. With the ageing of the population in the UK, the individuals are burdened with the retirement from the corporate and the state sectors. With the increase in the tax complexity, it is expected that in the longer-term, demand for high-quality wealth management services will increase.

Financial Highlights – Financial Year 2019 (31^st December 2019, GBP, million)


(Source: Annual Report, Company Website)
 
For the financial year ending 31^st December 2019, due to a decline in the insurance premium income, the Net insurance premium income declined to GBP 15.8 million versus GBP 16.9 million in the financial year 2018. Driven by an increase in the fee and commission income and positive investment returns for the period, the net income stood at GBP 16,563.5 million in the financial year 2019 versus a net expense of GBP 2,694.4 million in the financial year 2018. The group’s PBT (Profit before tax) stood at GBP 708.9 million in the financial year 2019 versus an LBT (loss before tax) of GBP 84.6 million in the financial year 2018. The group’s PBT (Profit before tax) attributable to the shareholders stood at GBP 187.1 million in the financial year 2019 versus a PBT (Profit before tax) attributable to the shareholders of GBP 211.9 million in the financial year 2018. The Profit for the year stood at GBP 146.6 million in the financial year 2019 as against Profit for the year of GBP 173.5 million in the financial year 2018. The basic earnings per share stood at 27.6 pence in the financial year 2019 versus basic earnings per share of GBP 33 pence in the financial year 2018. The diluted earnings per share stood at 27.5 pence in the financial year 2019 versus diluted earnings per share of GBP 32.4 pence in the financial year 2018. The financial dividend surged by 5 per cent to 31.22 pence in the financial year 2019 from 29.73 pence in the financial year 2018. The full-year dividend was 49.71 pence in the financial year 2019 versus 48.22 pence in the financial year 2018. The company’s cash balance stood at GBP 7,013.6 million as on 31^st December 2019 versus a cash balance of GBP 6,877.6 million as on 31^st December 2018. The group’s total assets stood at GBP 117,292.00 million as on 31^st December 2019 versus total assets of GBP 94,827.00 million as on 31^st December 2018. In the financial year 2019, the company generated an operating cash flow of GBP 435.4 million versus cash used in operational activities of GBP 30.9 million in FY2018.

Key Performance Indicators




Client Numbers

The number of clients is the key indicator for the St. James's Place, a company’s business model is based on managing the wealth of clients. In the financial year 2018, the number of clients surged by 8 per cent to 682 from 633 in the financial year 2017.



Client Retention

The group maintained a good client retention rate from the last five years, with over 95 per cent. The client retention rate stood at 96.4 per cent in FY2018 versus 96.3 per cent in FY2017.



Advisor Retention

Adviser retention reflects the satisfaction of advisers with the company’s proposition. In the financial year 2018, the adviser retention rate stood at 93.4 per cent versus 92.4 per cent in FY2017.



Funds Under Management

Income from FUM drives the profitability measures of the company. The FUM stood at GBP 95.6 billion in FY2018 versus GBP 90.7 billion in FY2017. The FUM showed a compounded annual growth over the last ten years period of 19 per cent.



Dividend

The dividend reflects the increased profitability and cash. St. James's Place dividend increased by 12.5 per cent to 48.22 pence in FY2018 from 42.86 pence in FY2017. The total dividend increased to 202 per cent over the last five years period.

Dividend History


(Source: Company Website)
 
Till the financial year 2013, the company is constantly increasing its dividend per share, which shows a progressive dividend policy adopted by the company and also show increased profitability and cash.

Financial Ratios
 
 

The reported Premium Earned - Change Ratio of 55.1 per cent for the financial year 2019 versus negative 14.4 per cent reported last year for the same period. The reported Reserves - Change in the financial year 2019 surged to 540.5 per cent from negative84 per cent reported last year for the same period. On leverage front, the debt-equity ratio of the St. James's PlacePlc’s was 0.55x, which was higher as compared to the industry median of 0.11x, reflecting that the company is more leveraged as compared to its peers. The Asset-Equity Ratio stood at 123.71x, higher than the industry median of 2.84x and 92.97x for the financial year 2018.  
 
Share Price Performance
 

Daily Chart as of March 2^nd, 2020, before the market close (Source: Thomson Reuters)

St. James's Place Plcshares were trading at GBX 986.40 at the time of writing before the market close (at 11:58 AM GMT) on 2^nd March 2020 and down by 2.87% versus the previous day closing price. Stock's 52 weeks High is GBX 1,206.00 and Low is GBX 897.80. At the time of writing, the share was trading 18.21 per cent lower than the 52w High and 9.87 per cent higher than the 52w low. Stock’s average traded volume for 5 days was 2,039,614.40; 30 days – 1,453,123.10 and 90 days – 1,413,245.01. The average traded volume for 5 days was up by 40.36 per cent as compared to 30 days average traded volume. The company’s stock beta was 1.14, reflecting high volatility as equated to the benchmark index. The outstanding market capitalisation was around £5.43 billion, with a dividend yield of 4.90 per cent.The shares of the company have delivered a positive return of 7.19 per cent in the last six months.

From the technical standpoint, 9 days, 14 days and 30 days relative strength index of the stock was favourable, and prices could rise further from the current trading level.

Valuation Methodology

Method 1: Price to Book Value Approach (NTM)


To compare St. James's PlacePlc withits peers, Price/Book Value multiple has been used. The peers are Hargreaves Lansdown Plc (NTM Price/Book Value was 13.43), IntegraFin Holdings Plc (NTM Price/Book Value was 10.68), Admiral Group Plc (NTM Price/Book Value was 7.12), M&G Plc (NTM Price/Book Value was 0.78) and Just Group Plc (NTM Price/Book Value was 0.37). The Average of Price/Book Value (NTM) of the company’s peers was 6.47x (approx.)

Method 2: Price to Earnings Approach (NTM)


To compare St. James's PlacePlc withits peers, Price/Earnings multiple has been used. The peers are IntegraFin Holdings Plc (NTM Price/Earnings was 32.50), Hargreaves Lansdown Plc (NTM Price/Earnings was 25.13), Quilter Plc (NTM Price/Earnings was 24.05), Admiral Group Plc (NTM Price/Earnings was 16.77) and River and Mercantile Group Plc (NTM Price/Earnings was 12.58). The Average of Price/Earnings (NTM) of the company’s peers was 22.20x (approx.)

Valuation Metrics


(Source: LSE)
 
As on 31st January 2020, the Net Debt to Equity ratio of the St. James's Place Plc’s was lower as compared with the Life Insurance/Assurance industry which shows that the company is less leveraged than the respective industry.
 

(Source: LSE)

This analysis is a useful technique to decompose the different drivers of ROE. It can be further examined through three financial metrics which are: net profit margin, asset turnover and financial leverage. This analysis helps to deduce whether the company’s profitability, use of debt or assets that’s driving ROE.
 
St. James’s Place Plc V/S FTSE 100 Share Price – 1 Year
 

(Source: Thomson Reuters)

In the last year, St. James’s Place Plc share price has delivered 4.43 per cent return as compared to negative 6.98 per cent return of FTSE-100 index, which shows that the stock has outperformed the index during the last year.
 
Dividend Yield
 

(Source: Thomson Reuters)
 
St. James’s Place Plc has a dividend yield of 4.9 per cent, which is slightly lower than the industry dividend yield of 5.57 per cent and the sector dividend yield of 5.57 per cent.
 
St. James’s Place Total Return - 5 years


(Source: Thomson Reuters)

In the last five years, St. James’s Place Plc has delivered a total return of 28.48 per cent while the FTSE-All share index has delivered a total return of 19.12 per cent.

St. James’s Place V/S Industry V/S Sector – 5 years


(Source: Thomson Reuters)

In the last five years, St. James’s Place Plc share price surged by 4.43 per cent, which is significantly higher than the industry growth rate of negative 8.4 per cent and sector growth rate of negative 7.46 per cent.

Growth and Risk Assessments

Investment in future business helps in achieving further sales growth and operational efficiencies. A well-balanced approach is evolving in the regulatory and macroeconomic environment. To meet the new regulations, group needs to implement new processes, failing to do so would increase the compliance risk. Acquisitions to match rapid transformation, may increase integration risks, and expected synergies may not be achieved. The group rely on a partnership with leading financial professionals and doesn’t have an in-house team. If the group fails to get individuals with a strong professional background, it will hamper the group’s reputation as well as financial performance.

Conclusion

While inflows may be affected from time to time by external factors, that are away from the business control, the customers’ financial planning conditions remain unchanged. Therefore, in the short-term period, as the existing external environment stays uncertain, faith towards investing might remain tempered.

The company is quite confident that the depth, quality and strength of the rising partnership will help them to stay well-positioned. Strategic collaboration, growing numbers of HNWIs and their wealth, and positive outlook towards the equity market of the UK may offer significant growth opportunities for STJ.

Over the course of 4 years (FY15 - FY19), the company’s revenue surged from GBP 3,113 million in FY15 to GBP 16,469 millionin FY19. Compounded annual growth rate (CAGR) stood at 51.66 per cent.
 
Based on decent prospects and support from the valuation as done using the above two methods, we have given a “BUY” recommendation at the current price of GBX 978.00 (as on 2^nd March 2020, before the market close at 11:58 AM GMT) with single-digit upside potential based on 6.47x NTM Price/Book Value (approx.) on FY20E book value per share (approx.) and 22.20x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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