The AJ Bell (LSE:AJB) share price rose 5% in early trading on Thursday (18 July) with the market rightly impressed by the stockbroker’s performance over the quarter.
There’s no question that AJ Bell’s been outperforming many of its peers in recent years, and this Q3 trading update goes some way to reaffirm that.
As an investor however, the big question is whether the stock deserves to be trading at 20.5 times forward earnings?
More impressive results
AJ Bell’s registered more impressive growth in both client numbers and assets under management (AUM) in Q3. The investment platform business saw customer numbers rise by 25,000 in the quarter to 528,000, a 13% increase over the year.
This includes 168,000 advised customers (up 7%) and 360,000 direct-to-consumer (D2C) customers (up 17%).
Assets under administration (AUA) grew by a staggering 20% to £83.7 billion, with gross inflows of £3.7 billion and net inflows of £1.7 billion in the quarter. Given the inflow figures, it’s clear that positive market movements — the appreciation of assets — has had a profound impact on AUA.
Nonetheless, the results show that AJ Bell’s continuing to grow its customer base and attract cash at speed.
What does this mean for AJ Bell?
AJ Bell’s one of the UK’s fastest-growing stockbrokers, and probably the fastest-growing of the big three — Hargreaves Lansdown and interactive investor, which is now owned by abrdn.
That’s certainly encouraging for investors. And if the Hargreaves Lansdown takeover goes ahead, it will be only one of the three that’s still listed on the UK stock exchange in its own right. I find that quite an interesting proposition.
However, with 528,000 clients, it’s around a third of the size of Hargreaves Lansdown, and its AUA are approximately half the size of its peer.
Regardless, there are clear signs that AJ Bell’s attracting clients at an impressive pace. This also occurred in a quarter when Hargreaves Lansdown offered new and existing customers £100 off their fees.
AJ Bell has been being offering its own incentives. Earlier in the year, the brokerage reduced its trading fees from £9.95 to £5 a trade. The dealing charges for frequent traders fell from £4.95 to £3.50 a trade.
The bottom line
It’s certainly an interesting proposition for investors. It’s growing fast and could soon be the largest independent brokerage listed in the UK.
However, there should be questions asked about its valuation. According to forecasts, the stock’s trading at 20.5 times forward earnings, 20.1 times projected earnings for 2025 and 18.5 times for 2026.
This makes it much more expensive than Hargreaves Lansdown. And Hargreaves is only trading at these elevated levels because of the takeover bid.
While AJ Bell does have a strong balance sheet with impressive cash flow, I’m unsure whether this is a stock I’d invest in. However, I did hold that same position in late 2023, and the stock is up 40% since then.
