Shares in AJ Bell (LSE: AJB) climbed 15% on 7 December, as the FTSE investment firm posted full-year results.
They’re still way down since the stock market crash of 2020, mind. But they look good value to me right now.
Cheap sector
Before I check on AJ Bell’s year, just a bit about the financial sector.
Banks, insurers, and all sorts of investment stocks crashed hard in the pandemic, and most have stayed there.
I think that’s just so short-sighted. Big City investors are so keen to make it look like they’re on the ball each quarter, they often don’t care about long-term value.
“Look at us, we’re holding this month’s winners, not those financial sector losers.” Is that any way to make top long-term returns for investors?
Key sector
Surely the financial sector can’t fail to prosper in the long term? It should, unless we plunge into total economic collapse. And in that kind of apocalypse, I think I’ll have more to worry about than my Stocks and Shares ISA.
We have banks like Barclays on a price-to-earnings (P/E) ratio of under five? Only around a third of the FTSE 100‘s long-term average?
It looks crazy to me. But I think it gives private investors like us a cracking opportunity right now.
Sure, there are economic risks. Interest rates, higher for longer, and all that stuff… Finance stocks could well face more hard times before they come good again. But I want to buy the shares cheaply, while I can.
Back to AJ Bell
So, what about AJ Bell’s latest news?
Ooh, “record financial performance, with revenue up 33% to £218.2m and profit before tax (PBT) up 50% to £87.7m.”
The PBT margin is up from 35.6% last year to 40.2%. And the firm reported a 46% rise in diluted earnings per share, to 16.53p.
The board hiked the total dividend by 46%, to 10.75p per share.
That’s a 4.2% yield on the previous day’s closing share price. And forecasts have it rising to 5% next year.
What’s happened?
AJ Bell saw record net inflows too, and has record assets under adminstration.
What does this mean, in a time when big investors have been treating finance and investment stocks like they’re discarded Covid masks?
Did the market just get it badly wrong when it turned away from this sector?
Well yes, I think exactly that.
Should we buy?
Would I buy AJ Bell shares now?
I’m not sure. I expect the next couple of years to be fine. But more new records? Hmm, I don’t know. The full effects of the interest rate rises of 2022 and 2023 might take some time yet to feed through.
Still, that dividend yield is tempting. And there are forecast P/E multiples of 15 or so for the next two years.
Looked at alone, I think AJ Bell would be a buy for me. But other finance stocks look so much cheaper, and those are where my cash will go.
