Shore Capital has upgraded AJ Bell PLC (LSE:AJB), the FTSE 250 investment platform, from hold to buy with a 700p price target after the company delivered a first-half earnings beat that the broker described as "amazing", driven by surging transaction volumes and the powerful tailwind of rising equity markets.
The broker's analyst Ben Williams lifted his earnings per share forecasts by 14% for the current financial year and 23% for the year after, arriving at a profit before tax margin estimate of 42% for the full year, above the company's own guidance of above 40%.
AJ Bell reported first-half revenues 19% higher year-on-year and 6% ahead of company-collected consensus, with profit before tax up 15% and 12% above expectations, at a margin of 43.2%, two percentage points above consensus.
The direct-to-consumer (D2C) division was the standout performer, with revenues up 35% year-on-year and transactional revenues up 40%, reflecting elevated trading activity across the period.
Transaction levels ran at around 12.5 per customer in the half, modestly above the long-term average of 12, and overseas trading was also elevated, factors management cautioned may not persist at the same rate into the second half.
A key driver flagged by Shore Capital is AJ Bell's sensitivity to equity market performance through so-called ad valorem revenues, fees charged as a percentage of assets under administration (AUA).
Markets rallied strongly in April, adding £2.9 billion to advised AUA and £2.4 billion to D2C AUA in a single month, a tailwind the broker said was "under-remarked-upon."
Marketing spend rose 41% to £25 million in the half, with management reporting that customer acquisition costs are falling and that more than 40% of D2C customers are now under 35, suggesting the investment is reaching a younger demographic.
The company announced a new £15 million share buyback alongside the results.
At midday, the shares were flat at 607p.