Hardcore newbies often run rings around well-established competitors. Welcome to the world of UK investment platforms. Within this, AJ Bell is taking market share. Its future growth trajectory knocks bigger competitor Hargreaves Lansdown into a cocked hat.
Investment platforms grow faster than family wealth. This secular trend has a strong foundation. The UK has abolished commission-based financial sales while introducing strong tax incentives for saving. New technology has made investing in online DIY businesses relatively painless.
Andy Bell co-founded the investment platform in 1995, long after he started Hargreaves Lansdown. AJ Bell has a lot going for it. Low fees and excellent service mean it’s been growing at twice the rate of the market over the past decade.
Despite the overall headwinds, AJ Bell performed strongly in the first half of the fiscal year. Rising interest rates and mortgage costs have squeezed households, meaning net new assets reached £2bn – down a third from this time a year ago. But the customer base is still growing, reaching 455,008. Assets under management were £68.6 billion, up 7 per cent since the start of the year.
Revenue rose 37 per cent to £104m. This is a variable – and potentially lower quality – source of income than management fees. AJ Bell doesn’t say exactly how much that contributed. But it believes that the normalization of cash balances may lead to pressure on revenue margins next year.
AJ Bell, which is making 21 times earnings this year, may seem pricey compared to Hargreaves Lansdown’s 12. But its growth outlook justifies the premium.
The group boasts a three-year compound annual growth of 20 percent in expected earnings per share. This puts AJ Bell at a price-to-earnings growth rate of about 1, similar to Hargreaves Lansdown. The incumbent is expected to deliver 3-year EPS growth of 12 percent, according to James Allen of Liberum.
To Hargreaves Lansdown’s snarky, Shakespeare’s words – via Stormzy – apply: Heavy is the head that wears the crown.
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