Today (8 March) marks a strong end to the week for the Just Group (LSE:JUST) share price. The stock is at its highest level since the summer of 2021, fuelled by the release of strong results. Yet given the outlook going forward, I’m not sure that this is just a flash in the pan. Here’s why.
Gains across the board
Let’s have a quick run through the results. The financial retirement product and service provider saw a spike in both sales and operating profit, largely thanks to the rise in interest rates.
Retirement income sales hit £3.9bn, up 24% versus the prior year. Operating profit jumped 47% to £377m versus the 2022 result of £257m. It bumped up the dividend per share payment by 20% to 2.08p per share.
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The rise in interest rates here in the UK meant that Just Group felt a really positive effect from the Defined Benefit and retail Guaranteed Income for Life markets.
It also benefitted from the retirement market being more active in general. The report stated that “the number of advisers looking for quotes from Just has increased by 50%”. With more independent advisors wanting to at least talk to Just Group for potential business quotes, it shows the amount of demand in that sector.
This might not be over
One reason why I think the share price is really climbing is that the outlook for the firm also looks very strong.
The CEO commented that “we now expect to achieve our target of doubling profits in three years instead of the originally intended five”. This was not just due to the great 2023, but rather due to “the multiple opportunities available and strong structural growth drivers in our chosen markets”.
Investors therefore need to readjust their expectations for the future share price movements due to the fact that earnings are likely to be higher than previously thought. With a current price-to-earnings (P/E) ratio of 4.55, I still think the share price is cheap.
At a basic level, if profits do double in three years and the share price also doubles in three years, the P/E ratio would stay the same (4.55). So I think there’s a genuine possibility of long-term share price growth here.
Risks involved
A risk I see here is that if interest rates fall this year, it would negatively impact the business. Further, given the upcoming UK and elections and other market-moving factors, volatility should increase. This could impact some of the pension-related products that hold investments in stocks and bonds.
Another point that is valid is that buying the stock at 52-week highs might not be the most sensible move. Of course, I would have loved to have bought the stock a year ago. Yet the stock is only up a modest 12% over the past year, so it’s not like I’ve missed out on huge gains.
Pulling everything together, I’m seriously considering buying the stock based on the strong outlook from the results today.
