I don’t know about anybody reading this, but I love businesses that quietly crack on with growing their owners’ wealth without fanfare. That’s certainly been the case with one FTSE 250 firm over the last 12 months.
Big gains
The stock in question is investment platform provider AJ Bell (LSE: AJB).
In the spirit of full disclosure, I once owned a slice of this company, having been attracted by the growth story, high margins and stonking returns on capital it was posting.
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Fortunately, I sold out prior to the pandemic. I did, however, vow to get back in if I saw a nice opportunity.
Unfortunately, I’ve failed to press the Buy button ever since. Had I done so this time last year, I’d be looking at a gain of 84%. And that’s not even factoring in the dividends paid over this period!
For perspective, the FTSE 250 index is up 19%. Don’t get me wrong, that’s a superb result for anyone holding a tracker fund and choosing not to pick their own stocks.
But I know which camp I’d prefer to be in.
Record numbers
Today’s trading update from the company goes some way to explaining why the share price has done so well.
AJ Bell closed FY24 with a record £86.5bn of assets under administration. That’s a jump of 22% in the year. Customer numbers also leapt by 14% to a record 542,000.
The net inflow of cash — the amount of money coming in after the amount going out is deducted — were particularly encouraging. This came to £6.1bn — 45% up on the prior year. If that’s not a signal of investor confidence returning in light of falling inflation, I’m not sure what is.
But could there be trouble ahead?
Calm before the storm
AJ Bell will confirm full-year numbers on 5 December. Prior to that, we’ve got the first Budget from new Chancellor Rachel Reeves.
Now, I think it’s fair to say that few investors are exactly looking forward to 30 October. Indeed, the company said today that it had seen “a noticeable change in both customer contributions to pensions and tax-free cash withdrawals” as the media does its best to whip everyone into a frenzy about what may be announced. As such, I wouldn’t be surprised if business (and the share price) wobbled a bit in Q1.
Focus on the long term
Then again, I’m a Fool. This means I’m more interested in a company’s long-term outlook. So, it’s the level of competition AJ Bell faces and whether it can continue growing from here that’s more important for me.
On this front, it’s a case of so far, so good, with the firm seemingly doing a stellar job of raising brand awareness and taking the fight to rivals by lowering costs. If interest rates continue to fall — making cash savings less attractive — I’m optimistic customer numbers will continue rising. An ageing population is likely to become increasingly conscious of the need to build up wealth for retirement as well.
AJ Bell can’t rest on its laurels, though. There’s always the risk existing clients will be tempted away.
A forecast price-to-earnings (P/E) ratio of 23 still looks reasonable to me considering this stock’s quality. But I’ll reassess once that potential doom-laden Budget has passed.
