Investments In AI Technology And Passive Options Will Attract More Clients In The Future

Key Takeaways

• New charging structure and innovative products aim to boost transparency and expand market, driving future revenue growth and client base.
  
• Investments in IT and advisor tools enhance efficiency, while SJP Academy strengthens advisor recruitment and retention, supporting long-term earnings.
  
• Transitioning to a new charging structure could decrease short-term earnings and profitability, with delayed benefits affecting revenue growth and operational efficiency.

Catalysts

A publicly owned investment manager.

• St. James's Place is implementing a new charging structure aimed at improving transparency and client comprehension, potentially increasing its appeal and market opportunity—likely to drive future revenue growth.
  
• The company is heavily investing in IT infrastructure and advisor tools for a more efficient business model, which could enhance operational margins and long-term earnings prospects.
  
• The SJP Academy program, which trains new and diverse financial advisors, enhances the retention and recruitment of advisors, contributing to sustained revenue and client growth over time.
  
• SJP's focus on innovative product offerings, like dedicated passive investment options and a broadened alternative solutions range, could attract a broader client base and increase funds under management, thereby boosting revenue.
  
• Plans to leverage data and technology enhancements, including AI tools for advisors, are expected to improve advisor efficiency and client service, supporting revenue growth and potentially increasing net margins.

St. James's Place Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming St. James's Place's revenue will decrease by 68.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.5% today to 60.1% in 3 years time.
• Analysts expect earnings to reach £487.5 million (and earnings per share of £0.94) by about March 2028, up from £398.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.2x on those 2028 earnings, up from 14.3x today. This future PE is greater than the current PE for the GB Capital Markets industry at 12.0x.
• Analysts expect the number of shares outstanding to decline by 0.96% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.79%, as per the Simply Wall St company report.

St. James's Place Future Earnings Per Share Growth

Risks

• The costs associated with implementing a new charging structure were higher than anticipated, requiring a £140-160 million investment, which could impact net earnings in the short-term due to deferred costs being incurred mainly in 2025.
  
• The shift to a simpler charging structure may temporarily affect new business margins, as the initial product charges are removed, leading to negligible margin arising from new business post-implementation, potentially impacting net margins and profitability.
  
• The company anticipates a dip in profitability due to the transition to the new charging structure, affecting revenue and earnings visibility during 2025 and 2026.
  
• The phased investment in strategic initiatives may not yield immediate results, meaning anticipated benefits and improvements in operating efficiency could take longer to materialize, delaying positive effects on net margins.
  
• Changes in adviser and client behavior due to the new charging structure might lead to short-term volatility in new business flows and net inflows, impacting revenue growth during the transition period.

Valuation

• The analysts have a consensus price target of £11.315 for St. James's Place based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £14.0, and the most bearish reporting a price target of just £8.1.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £810.9 million, earnings will come to £487.5 million, and it would be trading on a PE ratio of 15.2x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of £10.58, the analyst price target of £11.32 is 6.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.