St James's Place PLC (LSE:STJ) shares rose as much as 3% after UBS upgraded the stock to 'buy' from 'neutral' and set a 12-month price target of 1,465p, down from 1,565p.
The Swiss bank reduced its target price by 6% to reflect lower long-term flow assumptions linked to potential disruption from artificial intelligence-enabled advice.
The broker nevertheless argued that a moderate level of disruption was already reflected in the valuation.
UBS described St James’s Place as its preferred UK asset gatherer, citing earnings growth and valuation.
The shares traded on 12.5 times forecast 2027 underlying cash earnings, below the 13 to 15 times range of peers, according to UBS estimates.
A price-to-earnings ratio measures a company’s share price relative to its earnings per share and indicates how much investors are paying for each pound of profit.
UBS incorporated artificial intelligence-related risks into its base case by assuming net inflows fell to zero by 2032.
Under this scenario, assets under management growth was driven primarily by assumed market returns of 5% per year rather than new client money.
More severe stress scenarios implied downside of 20% to 60% from the revised valuation, depending on the extent and timing of gross flow declines.
Despite lower long-term flow assumptions, UBS expected St James’s Place to more than double its underlying cash result from £392 million in 2023 to £873 million by 2030.
This growth was expected to be driven by the run off of so-called Gestation funds under management, which currently earn no margin but will progressively convert into higher margin assets.
UBS also forecast a £50 million special share buyback at the full year 2025 results and expected the payout ratio to rise to 70% from 2027, one year earlier than management guidance.
The broker said it remained ahead of consensus on capital returns, although it was below consensus on medium-term underlying cash earnings due to its more cautious flow assumptions.
UBS valued the shares using a discounted cash flow model, which estimates the present value of future distributable cash using a cost of equity of 11.6%.
On that basis, it calculated that the shares were trading at around 14 times forecast 2027 underlying cash earnings on its target price.
After the initial burst higher, the stock settled at 1,284.4p, up 1%.