One might, perhaps, think it is fairly uncontroversial for a regulator to tell wealth managers they must show they are acting in good faith towards their customers, avoid causing foreseeable harm and help them meet their financial objectives. But last year it was enough for St James’s Place to set aside £426 million for potential complaints and implement a complete overhaul of its fee structure. Its shares are now 60 per cent lower compared with last year.
There are possibly thousands of people who are owed money back from SJP, many of whom may well be readers of this column. But the elephant in the room remains: is the stock a bargain? The shares now trade at a forward price to earnings multiple of 6.7, compared with a five-year average of 20; certainly value territory for Britain’s largest wealth manager.
For those searching for a bargain, the ultimate question lies in whether SJP will be able to conform quickly to the new rules and control reputational damage.
St James’s Place has a network of more than 4,800 financial advisers in about 2,700 partner businesses, who act as sales agents for the firm’s products, from investment advice to retirement planning.
The company charges an upfront advice fee for clients when they sign up, and then an ongoing advice fee annually for the relationship with their adviser, which is 0.5 per cent of assets for most clients. At the end of last year the company announced an overhaul of its fees, including scrapping penalties for customers pulling their money, which will come into full effect from mid-2025. Its implementation is expected to cost between £140 million and £160 million before tax.
It is perhaps little wonder then that the company swung to an annual loss after tax of just under £10 million last year, compared with a profit of £407 million the year prior.
Yet SJP still managed to attract net inflows of £5 billion in 2023, a sharp decline compared with £9.8 billion in 2022, but still impressive given a volatile year in the stock market, high rates in cash saving accounts and a great deal of media attention around former customers clamouring for refunds.
Clearly, then, there is much to be said for the brand power of St James’s Place. It is estimated that it manages around a tenth of Britain’s £1 trillion wealth management market, and despite regulatory concerns over its customer service, it has a client retention rate of 95.3 per cent. This may have been helped by steep exit fees, though these too are in the process of being removed.
SJP is making steady progress on its consumer duty compliance, and has said it anticipates it will take between two and three years to resolve historic challenges from customers. The company already “switched off” ongoing advice charges for 2 per cent of clients over the course of last year.
There is much here that looks worth owning, and it could be a good long-term value play, especially given the huge growth in Britain’s defined contribution pension market since 2012. Income investors may also be enticed by a generous dividend, which stood at 23.8p per share in 2023, although future payouts may be on the chopping block if consumer duty costs rise. Investors must be prepared for this risk: last year the number of complaints against SJP to the financial ombudsman more than doubled. The £426 million provision figure also only covers claims back to 2018, but some clients have won cases against the company going back to 2013.
A new, simplified fee structure in 2025 may make St James’s Place much more attractive to potential clients and could be very supportive of future net inflows. But for now, there is too much uncertainty around the full impact of new regulation.
Advice Hold
Why Market leader trading very cheap, but investors should wait for consumer duty to play out in full
Hilton Food Group
Hilton Food Group, which processes, packs and delivers meat, fish and vegan alternatives to retailers, has delivered steady returns since it listed in 2007. But a toxic combination of high food inflation and rising interest rates in 2022 caused the stock to sink as low as 500p. The shares are still around a third below the high reached in 2020.
But there is reason to be optimistic: the FTSE 250 company beat expectations for its 2023 financial year, with sales rising by 4 per cent to just under £4 billion and adjusted operating profit up by 34 per cent to £95 million. Hilton Foods reported a strong free cash inflow of £112 million, which helped its net debt to ebitda (earnings before interest, tax, depreciation and amortisation) ratio fall from 1.8 to 1 this year. Meanwhile, the company’s return on capital employed — which measures how effectively profit is generated from investments in the business — also improved, from 15 per cent to 18 per cent.
Its seafood business had been struggling, posting an adjusted operating loss in 2022 of £14 million on the back of particularly high inflation in the sector. But the recovery plan here is running ahead of schedule and the division has swung back into the black again, with an adjusted operating profit of £36 million for 2023.
Management said markets remained “challenging”. But the company enters the next year supported by a new meat and seafood partnership with the supermarket behemoth Walmart in Canada.
The stock is not particularly cheap at a forward price to earnings multiple of 16, although slightly lower than its rival Cranswick at 17 and below its five-year average of 19. Management proposed a final dividend of 23p, taking total payouts for its 2023 financial year to 32p per share and a yield of 3.8 per cent, which is not to be sniffed at.
Strong recovery in its seafood business, an improved balance sheet and growing profits suggest that Hilton Foods is back on form.
Advice Buy
Why Improving profits and resilience from retail partnerships
