The embattled FTSE 100 financial investment giant St James’s Place (LSE: STJ) is making a spectacular comeback – and it isn’t going unnoticed. Two of the UK’s largest investment banks have given the stock an Overweight rating in the past few days. Both Barclays and JP Morgan think things are going to keep getting better from here.
Shares in the major London-based financial firm are down 20% over the past year but lately, things are looking up. Since hitting a 10-year low on 16 April, the stock’s recovered a massive 74.6%!
Not everyone is so positive though. Four investment managers still have short positions open on the stock, including Marshall Wace and Millennium International.
So let’s take a look at the company’s books and figure out if it’s worth considering.
First, how did it get here?
St James’s Place is the UK’s biggest provider of financial advice, serving 960,000 of the country’s wealthiest residents. So I can imagine it’s pretty embarrassing when the company’s own stock is struggling.
The past two and half years haven’t been kind with the share price down to £7 from a high of £16.83 at the end of 2021. At its lowest point in April, it had fallen 75%.
New consumer protection rules introduced by the Financial Conduct Authority last year took the firm by surprise. Suddenly, its exceptionally high fee structure was no longer considered acceptable.
Lack of transparency was also noted as an unfavourable factor. Couple this with increasingly popular robo-advisors and index-linked funds and suddenly the company’s entire business model was in danger.
The regulatory changes raised questions regarding the company’s compliance so it put aside £426m for potential customer refunds. Subsequent changes to the fee structure meant net inflows fell to £700m from £2bn the year prior, hurting the share price.
But a shakeup, restructuring and share buyback programme have put things back on track.
So is it heading for success?
Let’s take a look
St James’s Place’s balance sheet looks clean. With half a billion in debt, £1bn in equity and about £6bn in cash, it’s pretty solid. And with a £3.8bn market-cap dwarfed by £26.8bn in sales, its price-to-sales (P/S) ratio is minuscule, at 0.1 times.
Earlier this year it became unprofitable, with earnings per share (EPS) slipping to a 1.8p per share loss. But now it’s back in the game with a record £181.9bn funds under management. In the latest first-half earnings results released last month, revenue increased and net income grew 2.2%. Profit margins are down to 1% from 2% due to all the regulation-related expenses but otherwise, it’s doing well.
The recent success is likely due to a £100m cost-cutting exercise and £32.9m share buyback programme announced in August. But CEO Mark Fitzpatrick says the company still has a lot of hard work ahead over the next 24 months. The long-term consequences of the cost-cutting are yet to be realised and could strain the share price.
Overall, the recovery’s impressive. There are still risks but with 3% more clients this year, people appear to be happy about the changes.
It might even come back stronger than ever. I like its chances, so I plan to buy the shares as soon as I have free capital this month.
