St James Place falls 20%! Will it lose its place in the FTSE 100?

Mark David Hartley investigates the reasons behind the sudden fall in the St James Place share price. Down 20%, can it maintain its place in the FTSE 100?

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On Wednesday 28 February, St James Place (LSE:STJ) — now the lowest-cap listing on the FTSE 100 — fell by over 20%. The share price is now at the lowest level it’s been in over 10 years.

The loss means its market cap dropped below that of Endeavour Mining and it’s now in threat of losing its place in the UK’s leading share index.

But why is the stock down, and more importantly — is this a lucrative buying opportunity?

Sneaky fees

In the past decade, St James Place has grown to become the largest pension and investment advisor in the UK. The company provides advice to almost one million clients via its 4,800+ strong body of financial professionals.

But it seems the firm should have taken some of its own advice.

Recently it came to light that St James Place may have been overcharging clients and providing inadequate service. A subsequent review in collaboration with the Financial Conduct Authority (FCA) revealed the extent of the matter.

The scandal has resulted in the company announcing a £426m compensation scheme. The funds will go towards alleviating clients that may have suffered losses as a result of the misconduct.

It also culminated in St James Place reporting a pre-tax loss of £4.5m for 2023 — a shocking contrast to the £503m profit recorded in 2022.

Buying opportunity?

The share price collapse has wiped £1bn off St James Place’s market value. The sudden loss has likely sent investors into a panic.

But for those of us not invested, I’m wondering whether this could be a good buying opportunity.

Until now, the company has performed quite well. The share price climbed from 156p in May 2009 to a peak of 1,672p in December 2021. Its unlikely that growth came entirely off the back of minor misconduct.

Independent reviews suggest the vast majority of St James Place customers are happy with their service. Analysts are also favourable about the firm, suggesting a share price trading at 63% below fair value and earnings forecast to grow at 45% per year. 

In light of the controversy, newly appointed CEO Mark FitzPatrick announced an overhaul to the company’s fee structure. The changes simplify fees and scrap a controversial charge for early withdrawal. It’s estimated that the new structure will impact profit growth for at least three years and likely subdue share price appreciation.

So where to from here?

Controversy can leave a bitter taste

Scandals are never good for a company and can devestate a reputation for years to come. 

But one-off price falls such as this seldom drag on for more than a few days, unless further revelations surface. I expect the St James Place share price will level out and begin to recover in the coming months.

Whether or not it can reclaim the highs of 2021 is another question. But I wouldn’t imagine the price will fall much further from here. And who knows when shares in the company will ever be this cheap again?

We all know the famous saying, “The time to buy is when there’s blood in the streets”.

Well, these streets are bloody and I think it’s time I grab some St James Place shares while they’re cheap!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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