The FTSE 250 is packed full of medium-sized companies hoping to grow into flourishing blue-chips, but it can be a long road getting there. The following two have hit one or two bumps since their recent IPOs, but the long-term direction of travel still looks promising.
AJ Bell
Investment platform AJ Bell (LSE: AJB) attracted plenty of attention when floated almost exactly a year ago, on 7 December 2018. It jumped 25% on the day and was up 60% within six months, only to retreat when key shareholder Invesco banked some of its profits.
The AJ Bell share price is down 14% over the past six months, and dropped 5% this morning, despite posting record profits in the first full year since its IPO. Yet today’s figures showed revenues up a healthy 17% to £104.9m, with profit before tax at 33% to £37.7m, fractionally above expectations.
The £1.59bn group attracted another 34,154 retail customers, increasing the total 17% to 232,066, with a 95.4% retention rate. Assets under administration rose 13% to £52.3bn.
Chief executive Andy Bell said the group’s strong balance sheet allowed it to increase the total dividend for the year 31% to 4.83p, adding that “structural growth drivers for investment platforms in the UK remain strong”.
I’m a bit mystified by the grumpy stock market response as these results look pretty solid to me. Maybe it’s because these numbers were flagged up in October’s year-end trading update, and investors wanted that little bit more?
The AJ Bell dividend yield is low at just 0.83%, so this is a growth stock rather than an income play. It still has a long way to go to catch up with FTSE 100 listed Hargreaves Lansdown. However, as a smaller operator its growth prospects may be brighter than its £8.57bn rival.
Quilter
Or should you consider FTSE 250-listed Quilter (LSE: QLT), the business formerly known as Old Mutual Wealth Management?
Its IPO in June 2018 didn’t go as well as AJ Bell’s, the stock falling sharply soon after, but the Quilter share price has recovered from that initial disappointment and is up 18% measured over 12 months. It is now the bigger operation, with a market cap of £2.84bn, and has a greater focus on offering personal financial advice, rather than fighting it out with the big investment platforms for mass-market execution-only business.
Last year, Quilter reported a 4% decline in assets under management, but October’s update showed a 9% rise to £118.7bn this year. That was despite a 12% year-on-year drop in third-quarter gross sales to £3bn, while it also suffered net client cash outflows, mostly due to previously notified investment manager departures within Quilter Cheviot.
The group trades at 14.4 times forward earnings, but those earnings are forecast to drop 20% this year, and rise just 2% in what could be a difficult 2020 for markets generally. Quilter offers a higher yield than AJ Bell at 3.2%, covered twice.
Both these stocks are a good way to play rising demand for pensions and investments management. However, their progress may hang on how stock markets perform over the months and years ahead
