Up 22% in a week! Top brokers are tipping this beaten-down FTSE stock to recover

After falling 37% this year, this struggling FTSE 250 stock just posted excellent first-half results, prompting Buy ratings from brokers.

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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.

Created with Highcharts 11.4.3St. James's Place Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

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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.

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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.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Mark Hartley has positions in Barclays Plc. The Motley Fool UK has recommended Barclays Plc. 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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