There are 10 million British families with investable assets of more than £50,000. St James’s Place and its army of self-employed financial advisers serve just over half a million of them.
For the most part, they seem to like what they are getting. The company reported record first-quarter net inflows of £1.99 billion, its funds under management growing to almost £80 billion.
St James’s caters for those with neither the time, the inclination nor the confidence to manage their own nest-eggs. With pensions and tax rules ever more fiendishly complicated, that sounds like a nicely growing potential customer base.
David Bellamy, St James’s chief executive, can’t remember a time when the company suffered a quarter of net outflows. It certainly hasn’t been in the past ten years.
The customers like the hand-holding they get from financial advisers in face to face meetings as well as the St James’s Place formula of placing them in specially created proprietary funds managed, in some cases, by star fund managers.
Client numbers are growing by about 40,000 a year and they are sticky: the client retention rate has been running at between 96 and 97 per cent a year, although this has slipped to 95 per cent.
The service doesn’t come cheap, however. Clients pay an annual management charge of 1.5 per cent of assets managed, of which St James’s receives 1 per cent, plus fund manager fees on top.
Some have not been happy, complaining of high and opaque fees — a charge denied by Mr Bellamy. Some of the exit penalties, which can run to 6 per cent of client assets, look egregious though.
There are inevitably compliance risks too. St James’s could be on the hook for any loss incurred because of a bad apple in its sales force.
Mr Bellamy reckons he can grow assets under management by 15 to 20 per cent a year, which is easy when markets are rising, as they have been for seven years, but much harder in bear markets.
There lies the ant in the jam for prospective investors. The chart shows how the company share price was clobbered in the market downturns of 2001-03 and again in 2007-09.
After rising 1 per cent to a high of £11.28 yesterday, the shares trade on 21 times forecast full-year profits and yield 3.9 per cent. Peer forward two years, however, and that drops to a multiple of 14 and a prospective yield of 5.5 per cent — if all goes well.
My advice Hold
Why Strong franchise but a bad moment in the cycle
Carpetright
It wasn’t quite a profits warning but Carpetright’s trading statement yesterday was more coir doormat than deep shag pile. The consumer environment in its main UK market was “more difficult” in the fourth quarter to April 22, it said, with underlying sales slowing to a stodgy 1.4 per cent.
All the recent macro data suggest that consumers are beginning to buckle in the face of slowing real wage growth and Carpetright, where the average spend is £340, is bearing the brunt. The fall in the pound against the euro has hurt because it imports a large chunk of its carpets from Belgium and the Netherlands. Add in some extra competition from Tapi, the hard-flooring retailer launched by the son of Carpetright’a founder Lord Harris, which has muscled in on 70 territories occupied by Carpetright, and times are tough.
The shares dropped 8 per cent to 225p after it said that it expected full-year profits to be “towards the lower end” of the £13.9-£16.2 million range.
Wilf Walsh, its chief executive, seems to be making the right moves, trying to restore the company’s indifferent reputation for service and embarking on store refits. Refurbished store like-for-like sales are growing by 6 per cent, while they are going backwards in the untouched shops. Refits are complete in 188 of the 414 UK shops.
There’s no debt so the company looks solidly placed to withstand a downturn. The shares trade on 14 times expected 2017 profits and 12 times forecast 2018 profits. There is no dividend, nor the prospect of one for at least another year.
My advice Hold
Why Difficult prospects reflected in cheap valuation
Rightmove
Warren Buffett likes to boast that his preferred holding period for the stocks he admires is “forever”. Scott Forbes, who used to sit on the board of Buffett’s jet-sharing business NetJets and now chairs the property portal Rightmove, seems to disagree.
Mr Forbes banked £4.26 million yesterday after selling 100,000 Rightmove shares. He dumped 300,000 shares in May 2014, netting £7.05 million, and 500,000 shares when he exercised options in March 2011 at a £3.14 million profit.
His holding has dwindled to 219,000 shares, although that is worth £9.28 million. Rightmove said there was “no specific reason why he has chosen to sell at this time”. The shares dipped 53p yesterday to £42.14, but are close to their high.
There seems no great cause for investor alarm. Only two months ago Mr Forbes expressed confidence in Rightmove’s continued success after a year in which it lifted underlying profits by 15 per cent and raised the dividend by 19 per cent. The industry newcomer OnTheMarket seems to have receded as a serious threat.
With the property market slowing and Rightmove about to go through the uncertainty of a new chief executive, it might be wise to ignore Mr Forbes’s rosy view, follow his example and take a bit of profit.
My advice Sell
Why Chairman knows best
And finally...
Martin Hughes, the hedge fund manager, seems to be chivvying to get a top price for his 59.5 per cent stake in San Leon Energy, the oil explorer. It said yesterday that Mr Hughes’s Toscafund had appointed Hannam & Partners to explore his options. San Leon, focused on Nigeria, is in talks with four potential bidders including Geron Energy of China. Mr Hughes said he was supportive of the San Leon management, but Hannam was working independently of them and their advisers. The shares rose 18 per cent to 50p.
