AJ Bell PLC (LSE:AJB), the investment platform operator, said in its interim results it expects revenue and profit margins to increase in the second half.
Profit before tax margin guidance for the full year (to the end of September) has been raised to around 35% from 32-33% previously. The company said further improvement is anticipated in fiscal 2023.
The company, which revealed it had cut a number of charges as customers look to tighten their belts, said the long-term structural drivers of growth in the UK investment platform market remain strong with around two-thirds of its estimated £3,000bn target addressable market not yet on an investment platform.
“We are well-positioned to attract an increasing share with our leading propositions and established brand in both the advised and D2C [direct to consumer] segments,” the company said.
Half-year revenue edged up 2% to £75.5mln in the six months to the end of September from £73.9mln the year before.
Profit before tax tumbled 17% to £26.1mln from £31.6mln the previous year and the profit before tax margin fell 8.2 percentage points to 34.6% at the end of March from 42.8% a year earlier.
The interim dividend has been hiked 13% to 2.78p from 2.46p.
"Whilst market uncertainty is likely to persist in the short-term, our business model ensures we can continue to invest in our customer propositions whilst delivering strong financial performance and we expect profit before tax for the full year to be at least in line with consensus market expectations," said Andy Bell, the chief executive officer of AJ Bell.
Shares in AJ Bell were up 4% at 265.4p as the market cheered the increase in guidance and the prospect of margins recovering.
“At a time when people are seeking to manage the impact of rising living costs, we have announced a number of reductions to our platform charges across both our advised and direct-to-consumer propositions which will deliver total annualised savings to our customers of around £5 million,” Bell claimed.
Liberum Capital Markets said the interims were slightly ahead of its forecasts and reiterated its ‘buy’ recommendation and 370p price target.
The stock trades at a premium to the rest of the listed investment platforms on a price/earnings ratio (PER) of 22.7 (for the calendar year 2022). This is similar to sector peer Brewin Dolphin Holdings Plc (LSE:BRW), which trades on a forecast PER of 21.2, and IntegraFin Holdings PLC (LSE:IHP) (20.1) but well above Hargreaves Lansdown PLC (LSE:HL.), which is on a projected PER of 17.4; more traditional brokers, such as Peel Hunt PLC (5.7) and finnCap Group PLC (5.1) look cheaper still but Liberum feels AJ Bell’s premium is justified, “given the higher than sector average earnings growth, excellent track record of customer growth and potential upside from interest rate rises”.
“The strong earnings growth is reflected in the fact AJ Bell already has a lower PEG ratio than both Hargreaves Lansdown and IntegraFin, but also has greater potential to maintain, if not raise, revenue margins in the future given the much lower starting point,” Liberum argued.