I was shocked to check on 2023 results from St. James’s Place (LSE: STJ), and find the share price fell 30% in morning trading.
Shares in the financial services firm had been soaring after the 2020 stock market crash. But they fell back in the last couple of years.
And now this, after results on 28 February, means a five-year fall of 56%. Ouch!
Disaster
The company has set aside a whopping £426m for potential refunds to clients who overpaid for fees and advice.
Oh, and the board has slashed the dividend, from 52.78p per share in 2022 to 22.83p. That’s a dividend yield of just 3.7% on the previous close, down from a forecast 8.5%. Did I already say ouch?
In the circumstances, I guess it could have been worse. I’m surprised the final 8p dividend wasn’t cut altogether.
It’s all about a growing number of customer complaints. Working with the Financial Conduct Authority (FCA), the firm has come up with a figure it thinks will satisfy any claims. Perhaps disturbingly, CEO Mark FitzPatrick said that “where gaps in record-keeping mean that there is a lack of evidence of the delivery of ongoing servicing, we’ve refunded these charges to clients“.
He also says “We recognise that this is a disappointing outcome for everyone.” He’s on the nail with that one.
FY performance
This shock overshadows the actual 2023 performance, which looks fine.
We have a pre-tax underlying cash result of £483m, down a little from £485.5m in 2022. I’d say that’s good in the year we’ve just had.
We also see net inflows, which is more than a few competitors achieved. That helped bring total funds under management to £168bn, up from £148bn the year before.
And in all, I think any asset manager would be happy with results like this in the horror year that was 2023.
But then, that big client refund provision knocks it all down to a £9.9m loss after tax, on IFRS terms.
What to do?
The big question now is what should investors do? Prior to this shock, forecasts had the stock on a very low valuation.
We were looking at a price-to-earnings (P/E) ratio of nine for the current year, rising close to 10 for 2025. And analysts expect the big 2023 dividend to soften a little, but still deliver 7.4% by 2025.
I had St. James’s Place down as a candidate for my 2024 Stocks and Shares ISA for sure.
If this really is a one-off hit, the price fall might have made the stock a good long-term buy now. I mean, a payment for past overcharging shouldn’t affect the future business, right? It might put off some future customers, though.
Will I buy?
A number of other investment managers and insurance firms are also on my ISA list, without this uncertainty. So I don’t need to take the risk.
The stock could turn out to be a good buy now, but I’ll just sit back and watch.
