Today, I’m running the rule over two UK-based wealth management stocks. Could these stocks add some fizz to your personal portfolio?
St James’s Place
FTSE 100 wealth manager St James’s Place (LSE: STJ) offers tailored face-to-face wealth management advice to individuals, trustees and businesses, through a network of over 3,400 qualified advisers. The company has a strong client retention rate and benefits from high barriers of entry to the industry.
It has been a strong performer over the last five years, rising from around 350p to 1,200p, a gain of 240%. Shareholders have also been rewarded with impressive dividend growth, the payout increasing from 8p per share in FY2011 to 33p last year.
Interim results released this morning for the six months to the end of June looked impressive. Net inflows surged 40% to £4.3bn, taking group funds under management to £83.0bn, and the company generated new business profits on a European Embedded Value (EEV) basis of £343m, up 50% on last year. Underlying profit before shareholder tax on an IFRS basis came in at £106.3m, up 44% on last year.
In a signal of confidence from management, the interim dividend was raised a formidable 25% to 15.41p. Chief executive David Bellamy said: “The continued momentum across all aspects of our business and growth in adviser numbers underpins why we remain confident in our ability to deliver sustained growth.“
While these results look excellent, I’m not sure there’s a great deal of value left in the stock at the current valuation. With analysts forecasting earnings of 42.4p for the full year, the stock trades on a forward P/E ratio of a lofty 28.3. Furthermore, while dividend growth has been excellent in recent years, dividend coverage looks a little thin at present.
For this reason, I’m not a buyer of the stock right now. There’s a lot I like about the company, but after a 70% share price run since Brexit, the valuation is just little too stretched to offer much value, in my view.
Hargreaves Lansdown
Similarly, savings and investment platform specialist Hargreaves Lansdown (LSE: HL) has also been a strong performer over the last five years, its shares rising around 150%. However, like St James’s Place, the stock’s valuation looks a little high to me.
There’s no doubt that it has many things going for it – assets under management have surged in recent years, rising from £26bn in 2012 to £77bn at 30 April, and the company has enjoyed strong operating margins of around 50%-60% in the last few years.
Furthermore, the investment provider should benefit from the UK’s ageing population and recent changes to pension legislation going forward. City analysts expect the company to lift its dividend by a huge 60% this year, taking the forward dividend yield to a healthy 2.9%.
I use the Hargreaves Lansdown platform for my self-invested personal pension (SIPP), and I’ve always been very impressed with both the interface and the company’s customer service.
However, at the current valuation, I’m not seeing a great deal of value in the stock. Competition in the mutual funds space is set to heat up in the near future, with US tracker fund giant Vanguard recently launching in the UK, and on a forward P/E ratio of 31, Hargreaves Lansdown looks to be fully valued right now, in my view.
