Down 62% over the past year, is the St. James’s Place share price a dead duck?

Jon Smith acknowledges the steep fall in the St. James’s Place share price, but explains why there’s opportunity ahead for the firm.

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Finding undervalued stocks that turn around over the course of a few years can offer rich rewards for patient investors. Having fallen steeply over the past year, the St. James’s Place (LSE:STJ) share price could fall into this category. Yet with the stock moving lower, I need to be careful not to confuse a value play with throwing money down the drain.

Many problems

First let’s run through why the business is in such a pickle right now. A good chunk of the 62% drop over the last year has come in just the past few months.

For example, the poor 2023 results released in February didn’t help. It actually slipped to a full-year loss. This was largely due to the allocation of £426m that has been set aside for client refunds. This relates to the fact that “client servicing was less complete in the years preceding investment into [the] Salesforce CRM system in 2021.”

Back in January, the business provided an update on its assets under management. This is a key part of the business, as the more assets it looks after for clients, the more fees and commissions it can look to earn.

Unfortunately, the net inflows for 2023 at £5.12bn were almost half the 2022 figure of £9.78bn. Sure, this was still an inflow, but it showed a sharp drop versus where the business was just a year ago.

Optimism ahead

It’s true that the business has been through a tough time and isn’t out of the woods for now. Yet is the 62% fall really merited? There are several reasons to think that the business can come out of this stronger.

For example, even though inflows shrank in 2023, it still experienced funds coming in. In fact, it ended the year with a record total gross funds under management. So if this money can be put to work by the advisers this year, revenue could outperform.

Speaking of revenue, the 2023 figure was only modestly below the prior year number. So even though the business swung from a profit to a loss year-on-year, it was the result of one-off exceptional items. If an investor looks past that, the business isn’t seeing the rapid fall in client demand that the share price collapse would indicate.

There’s further reason for optimism based on the arrival of new CEO Mark FitzPatrick. He took the position in Q4 last year but is only now really getting his feet under the table. After six months in the role, I’d expect him to be able to now make any changes needed to make a difference in 2024.

Decision time

I don’t think the stock is a dead duck. It certainly has value and although it has problems too, I don’t see them as being long-term issues that could derail the company.

Of course, the fall in the share price can’t be ignored. Investor sentiment hasn’t flipped to being positive about the company yet. That’s why I’m looking to only invest a small amount right now. But over the course of the next six months, I’ll keep adding small amounts to this in order to benefit if the share price keeps dropping.

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.

Jon Smith 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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