7th Dec 2023 11:34
(Alliance News) - AJ Bell PLC on Thursday reported record annual earnings, giving its stock a boost and soothing some investor worry over consumer duty, which has hung over the stock lately.
Shares in the company shot up 14% to 293.70 pence each in the wake of the announcement. However, shares have fallen some 7.0% over the past six months. The stock came under pressure amid regulatory worries.
Back in September, the FCA sent a letter addressed to chief executives of investment platforms. The watchdog particularly highlighted interest payments.
The letter read: "Where interest payments are accrued on customers' cash balances held by firms, this should be carefully considered as part of fair value assessments and to ensure appropriate disclosure, especially in the current economic environment of higher interest rates. Our expectation is that firms deliver fair value to customers and support consumer understanding in line with the requirements of the consumer duty.
"The emerging trends in the market for executing investment transactions online by retail customers have seen the growth of online trading applications platforms. Our recent focused studies found business practices akin to 'gamification', that overly encourage risky short term trading including brokerage deals that fail to deliver best value for customers. Our expectation is that firms should maintain controls and capabilities to understand and effectively monitor customers' trading activities, ensure customers are adequately informed of relevant risks and protect customers from reckless trading and scams."
For the financial year ended September 30, the investment platform generated record revenue of GBP218.2 million, up 33% from GBP163.8 million. Pretax profit shot up 50% to GBP87.7 million from GBP58.4 million.
AJ Bell proposed a final dividend of 7.25 pence per share, up 58% from 4.59p. Its total annual dividend amounted to 10.75p, up 46% from 7.37p.
AJ Bell reported assets under administration of GBP70.9 billion, up 11% from GBP64.1 billion a year earlier. The FTSE 250 listing said customer numbers surged by 50,880 to end the year at 476,532.
Edison analyst Neil Shah commented: "AJ Bell has ridden the wave of inflation, which drives investment activity, as well as the general growth in retail investment seen since the pandemic. The decision to add bond and gilt purchases to the platform has, in addition, allowed AJ Bell to reap some of the rewards of rising interest rates. The growth of the platform, combined with the addition of new tools for institutional investors, shows a company with big ambitions to place itself at the heart of British financial services."
AJ Bell achieved record net inflows for the year of GBP1.65 billion, up 57%, helping send assets under management totalled 68% higher to GBP4.7 billion.
"I am pleased to report another year of strong financial performance for the business which has demonstrated our ability to continue to grow in different market conditions," Chief Executive Michael Summersgill said.
"As we approach half a million platform customers, we remain focused on providing a great value proposition, with a philosophy of sharing our scale benefits with customers. Having reduced several fees across the platform in 2022, this year we have increased the interest rates paid to customers several times and will soon be increasing them further, with a particular focus on pension drawdown where there is a customer need to hold cash to fund income payments."
Summersgill said that while a "challenging environment" is likely to continue in the short-term, AJ Bell has promising long-term prospects.
In November, analysts at UBS highlighted how new fair-value assessment rules, announced in May, could leave investment services firms facing a hit associated with higher consumer duty and clearer standards of consumer protection. UBS had kicked off coverage of AJ Bell at 'sell' last month.
Shore Capital Markets analyst Vivek Raja noted the consumer duty-related worry.
"AJB's share price has suffered in line with the sector, its shares over the past year [down] 30% versus the FTSE All Share. Worries over consumer duty and generation of interest income on client cash balances will have weighed, particularly on the roughly third of the business that is D2C. We see the larger advised business as more resilient," Raja said.
"We view AJB as a high-quality compounder which should continue to take market share, driving attractive organic and repeatable growth over the long term."
By Eric Cunha, Alliance News news editor
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
AJ Bell