St James’s Place (LSE: STJ) jumped 22% last week after posting a spectacular set of first-half results on 30 July. In February, the FTSE 250 financial services company was hit by an overcharging scandal that shredded 37% off the share price in a few weeks.
But after hitting a low of 402p on 16 April, it began a slow recovery. This recent jump means it’s finally recovered the losses, hitting a yearly high of 704p last Thursday.
So what prompted this incredible performance?
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Stellar results
The firm’s H1 2024 results revealed record funds under management (FUM) of £182bn boosted by net inflows of £1.9bn. It also posted an IFRS profit after tax of £165m, a 2.2% increase from last year. Revenue increased 97% to £15.8bn but higher expenses slashed profit margins in half to 1%.
But more than just the results themselves, the firm has outlined an impressive recovery and cost-savings plan. It plans to cut £100m in expenses by 2027 with an aim to achieve cumulative net savings of around £500m by 2030. It hopes to reinvest approximately 50% of these savings back into the business.
A rather ambitious plan in my opinion, but one that’s seems to have caught the attention of brokers. Bank of America and UBS put in Buy ratings for the stock last week, followed by Overweight ratings from JP Morgan and Barclays.
Dividend cuts
Despite the good results, it also announced a decreased interim dividend of 6p per share. This is down from 15.8p last year. The full-year payout is yet to be confirmed but will likely be less than last year’s 23.8p — which was already down from 52.8p in 2022.
The yield is now down to 2% after starting the year around 8%.
However, the firm has also initiated a £32.9m share buyback programme. This will likely help to boost the final dividend. The ex-dividend date is 22 August, with payment on 20 September.
Ongoing issues
There are still lingering issues from the overcharging scandal that present risks to the stock. Earlier this year, St James’s Place put aside £426m for potential refunds to disgruntled customers. It’s also had to overhaul its charging structure, which may mean lower profits for the business.
Cost-cutting exercises are a good start but only go so far if a company isn’t profitable.
With earnings per share (EPS) now back up to 30p from a 1.2p loss, things are looking up. But the full costs of the overcharging scandal (both financial and reputational) remain to be seen. There’s still a lot of work to be done before the company is in the clear.
Growth potential?
Shareholders who bought the stock during the recent dip will be celebrating. But even for new investors, I think there’s still a lot of room for more growth. The price remains down by 59% from the December 2021 high of £16.83.
If it can claw back some customer confidence with the new cost structure, I think St James’s Place might just have a chance of reliving its glory days. But it’s a bit early to tell. I’m going on holiday this month and if the price is still above 680p when I return, I’ll consider buying the shares.
