Scrappy upstarts often run rings around established rivals. Welcome to the world of UK investment platforms. Within this, AJ Bell is seizing market share. Its future growth trajectory knocks bigger rival Hargreaves Lansdown’s into a cocked hat.
Investment platforms are growing faster than household wealth. This secular trend has strong underpinning. The UK has abolished commission-based financial sales while providing strong tax incentives to save. New technology has made online DIY investing relatively painless.
Andy Bell co-founded the investment platform in 1995, long after Hargreaves Lansdown began. AJ Bell has a lot going for it. Low fees and a superior service mean it has been growing at twice the rate of the market over the past decade.
Despite macro headwinds, AJ Bell performed strongly in the first half of its fiscal year. Rising rates and mortgage costs have squeezed households, meaning net new assets were £2bn — down a third from this time a year ago. But the customer base is still growing, and has reached 455,008. Assets under administration hit £68.6bn, up 7 per cent since the start of the year.
Revenues rose an impressive 37 per cent to £104mn The figure was juiced up by net interest income from treasury management. This is a more variable — and potentially lower quality — revenue stream than administration fees. AJ Bell does not say how much this contributed exactly. But it reckons normalising cash balances may compress revenue margins next year.
AJ Bell, on 21 times this year’s earnings, may look expensive compared with Hargreaves Lansdown on 12. But its growth prospects justify this premium.
The group boasts three-year compound annual growth of 20 per cent in forecast earnings per share. That puts AJ Bell on a price to earnings growth ratio of around 1, similar to Hargreaves Lansdown. The incumbent is forecast to deliver 3-year EPS growth of 12 per cent, according to James Allen at Liberum.
For harassed Hargreaves Lansdown, the words of Shakespeare — via Stormzy — apply: heavy is the head that wears the crown.
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