Stock markets have been through a bumpy time but you wouldn’t think it from looking at the shares of top FTSE 100 financials.
Companies selling investments, pensions and insurance policies have outperformed the wider market, often quite spectacularly. Legal & General Group and Prudential have returned 145% and 125% respectively over the past five years. Even fund manager Aberdeen Asset Management, hard hit by its exposure to emerging markets, is up 129% over that time.
The following three FTSE 100 financial stocks are frequently overlooked by investors but also have plenty to shout about.
Fixed Interest
Asset manager Schroders (LSE: SDR) has never grabbed the attention of private investors. This is a company that broker Numis called “dull and boring”, although that was intended as praise. Its share price isn’t that dull and boring, having doubled in five years. It is even up 20% over the last troubled 12 months. Black Monday has left its scars and I was hoping for a more tempting valuation than 17.55 times earnings. At 2.70%, the yield isn’t so tempting but that’s the price of success.
Schroder’s first-half profits were a pleasant surprise. The bond bubble didn’t burst and demand for its fixed-income products remained firm. Pre-tax profits rose 17% year-on-year to £305.7m, beating estimates of £300m. Net inflows were surprisingly strong in Asia-Pacific and Continental Europe, two troubled regions of the world.
Its figures look good, with operating margins at 26%, ROCE at 29% and forecast earnings per share (EPS) growth of 7% this year and 8% next. A recent 21% hike in the dividend offers some hope on that front. Schroders could be a great risk-on stock when investors get their appetite back.
Old Friend
Old Mutual (LSE: OML) has been solid rather than spectacular, its shares up 45% over five years. Again, Black Monday has hurt. The Anglo-South African company may also miss chief operating officer Paul Hanratty, who steps down after 30 years. At 11 times earnings and yielding 4.4%, however, today’s entry price looks attractive.
Recent half-year figures show a 20% rise in the adjusted operating profits to £904m. The dividend rose 8% to 2.65p. Old Mutual’s core market is South Africa, which means it has to contend with local challenges such as power shortages and the wider emerging market slowdown. EPS are forecast to rise a solid 5% this year and 9% in 2016, lifting the yield to a respectable 5.5%. Covered 2.1 times, it looks safer than many on the FTSE 100. With the share dropping 15% in the last three months, now could be a good time to buy.
The Place To Be
Wealth manager St James’s Place (LSE: STJ) has been one of the best performing financials of all over the past five years, up a whopping 223%. You can guess the effect this has had on the stock’s valuation, now a pricey 25 times earnings, and the yield a poorly 2.63%.
Yet this stock has only recently come on to many investors’ radars, and many will regret failing to spot it earlier. Its half-year report shows a healthy 16% rise in gross inflow of funds under management to £4.4 billion, and a similar rise in total funds under management to £55.5 billion. It has also proved effective at retaining existing client funds (Aberdeen, please take note).
With hefty forecast EPS growth of 32% next year, and a 3.8% yield by the end of 2016, St James’s Place holds out the promise of more growth to come.
