Peel Hunt has kept its buy rating for Charles Stanley despite the wealth manager’s profits plunging by over a quarter due to falling revenue and a 67% hike in its Financial Services Compensation Scheme levy bill.
Pre-tax profits slumped from £9.1m to £6.6m in the six months to 30 September as the Covid-fuelled turbulence in equity markets and working from home over the lockdown period made growing funds under management and administration (FUMA) and revenues challenging.
Revenues fell by 4.1% to £81.9m, despite the fact total assets were up 12.9% to £22.8bn at the end of the first half of the financial year which was in line with the market recovery. However throughout the period FUMA averaged £22.1bn which was 9.4% lower compared with the previous year.
In addition to weaker revenue growth, profits were impacted by an increase in its FSCS levy contribution from £2.1m to £3.5m.
Peel hunt doubles profit forecasts for Charles Stanley
Despite the weaker headline figure Peel Hunt retained its “buy” recommendation on Charles Stanley, upgrading its full year profit and revenue forecasts after the wealth manager’s results were “much better than expected”.
Analyst Stuart Duncan said the rosier H1 picture was driven by better revenue performance and the wealth manager’s strong cost control, which resulted in operating expenses falling 1% to £75.2m.
Though Duncan said challenges for Charles Stanley remain to improve its organic growth rate, he added, “our full year forecasts are clearly too low, given the performance in H1, and given recent increases to market levels”.
“Taking this into account, we increase our full year revenue assumption to c.£164m from £155m, with a subsequent upgrade to profit forecasts to £12.4m from £5.7m previously.”
Trend of higher outflows from existing clients and IFAs
Charles Stanley said over the interim period it had seen a “trend” of higher levels of redemptions from existing clients, adding the consolidation of IFA companies had also led to an increase in outflows from “certain services”.
Investors pulled a total of £400m from its discretionary, advisory and execution-only businesses, which was higher than wealth manager’s net outflow estimates in its October trading update. But this was offset by £500m from market performance.
Charles Stanley chief executive Paul Abberley (pictured) said that despite the recent positive news on a vaccine from Pfizer/BioNTech and Moderna, it was difficult to predict the growth outlook for next year as much of the world grapples with a second wave of the pandemic.
“Although the effects of the pandemic will be with us for some time, Charles Stanley remains well-positioned,” he said. “We have a strong balance sheet, with no debt and good cash flows. This will allow us to continue to provide clients with an excellent service and to make further progress with our strategic objectives.”
