STJ - St. James Place.L

[kab60]

Considering all the uncertainty around brexit/Trump etc. I just wanted to throw this one out here for those of you looking for quality businesses in the UK.

 

It's a wealth management business (rather a servicer for wealth managers - they have some 4.000 advisors and don't invest themselves but give mandates to stock, PE and bonds shops etc and customize a portfolio for private clients that's optimized for taxes etc).

 

It screens poorly, since they're growing their pension assets quiet rapidly, and those don't generate income for the first six years.

 

Which  means that the company screens quiet expensively on near term earnings but actually has a large store of value that will flow to shareholders in the coming years (retention rate is around 95 pct., so "customers" stick around for a looong time).

 

One can very roughly halve the current PE to account for the pension AUM that doesn't hit the P&L before year 7.

 

According to St. James' estimates the present value of their business today is 12,5 GBP, while the stock has traded down to some 9,3 GBP after disappointing earnings and fee gathering and no dividend raise (they've increased it 15-20 pct. in the last years) the other day.  You basically get a franchise that is growing double digit organically and has doubled AUM in five years (while keeping customers happy) for "free".

 

2/3 of client assets is invested in equities, but most of them are invested outside of Europa, so a falling pound is actually quiet good for their clients.

 

Current yield around 5 pct.

 

They're investing heavily in recruiting financial advisors through their own Academy as well as upgrading their IT infrastructure (5 years under way). They've already moved most of their business to the new systems, so expenses from running two systems (as well as implementing a new one) should drop when legacy systems are phased out and everything is moved to the new one (Bluedoor).

 

Don't have time for more right now, there's a decent pitch at BLS Capital (which have a very good track record investing in asset light, high ROIC compounders) here: http://www.blscapital.dk/en/company/st-jamess-place-2/?tag=global

 

 

 

[Jurgis]

I haven't looked at this, just a comment about retention. If retention is 95% and they need 6 years before they start earning, they lose 23% of clients in those 6 years.  ::)

[kab60]

I haven't looked at this, just a comment about retention. If retention is 95% and they need 6 years before they start earning, they lose 23% of clients in those 6 years.  ::)

 

Well, that's usually how churn works (retention rate is actually 96 pct.), and according to that BLS writeup the average client relationsship is actually 20-25 years.

 

They experience quiet impressive net growth (AUM doubled in five years) even in a period of political turmoil and uncertainty.

 

What I find interesting is that underlying growth is very solid driven by different drivers. Growth in advisors, growth in advisor productivity (advisors are most productive 10 years down the line, they need to gather AUM etc.) as well as as favorable demographics because people live longer. And then you might get growth in AUM simply from markets going up over time. At the same time, they're running two it-systems and investing for the long term, so profitability might be depressed.

 

On another note, but very important when thinking about the terminal value, their clients seems to like their service - leading to lots of referred business (according to themselves 94 pct. of clients are between happy and very satisfied). While I'd not be happy paying their fees, I actually think they deliver a valuable service.