The current financial environment is certainly challenging for UK savers and investors. For starters, savings accounts are paying abysmal rates of interest. Then there’s the high level of stock market volatility – in the last week, the FTSE 100 has been up and down like a yo-yo. Third, there’s Brexit to consider. Realistically, no one knows how Brexit is going to impact the UK economy (the Bank of England has today lowered its growth forecast for the UK), meaning there’s considerable uncertainty for those who are looking for somewhere to park their savings.
One company that I believe could benefit from this challenging environment is FTSE 100 constituent St. James’s Place (LSE: STJ). Described by Deutsche Bank analysts as the “leading company in a growth industry,” St. James’s Place is a wealth management group that provides high-quality, bespoke financial advice to individuals, trustees, and businesses on a face-to-face basis. Through a network of nearly 4,300 advisors across the UK, it offers investment planning, retirement/pension planning, risk protection, inheritance planning, mortgages, banking, and business advice.
Given that the demand for trusted financial advice is likely to remain robust in the years ahead due to the complexity of the financial environment, I believe STJ has investment appeal.
Robust fourth-quarter update
A fourth-quarter update from the wealth management group today certainly looks encouraging. For the quarter, the company enjoyed gross inflows of £3.98bn, up from £3.95bn in Q4 2018, with closing funds under management ending the year at £116.99bn, up 22% on the figure the year before. The group also advised that client retention remained strong at 96%, up from 95.9% last year.
Chief Executive Andrew Croft commented: “Our advisers continued to work hard in supporting clients through a difficult environment, resulting in strong retention of client investments throughout the year and again demonstrating the resilience of our business.” He also said that the strength and scale of the business today gives the group confidence that it is well placed to continue to grow.
The shares are outperforming the FTSE 100 today on the back of this update.
Robo advisory threat
One concern that some investors have had in relation to St. James’s Place in recent years is the threat of so-called robo-advice – innovative technology that provides investment management advice with minimal human intervention. Personally, I’ve never been too concerned about this threat. My view is that if someone has a significant amount of money to invest, they’ll probably want to discuss their options with a trusted (human) financial expert.
Interestingly, a number of robo-advice services have been shut down recently due to a lack of interest in this form of financial advice. For example, earlier this month, Moola – which is owned by Mercer – announced that it will be closing at the end of February, while last year, Investec, UBS, and ABN Amro all shut down their robo-advisory services. I see this as a positive development for St. James’s Place.
Attractive dividend yield
STJ shares currently trade on a forward-looking P/E ratio of 23.5. Given the company’s track record and growth prospects, I think that valuation is fair. A dividend yield of approximately 4.6% adds weight to the investment case. Overall, from a long-term investment point of view, I see considerable appeal here.
