Numis Securities has recommended both SJP and SLA as “buy” recommendations in its latest Q1 mark-to-market report, noting that both share prices have room to grow by about 378p and 94p, respectively.
While the stock broker reiterated its view that SJP should continue to be a core long-term sector holding for many investors, it added that SLA, which it increasingly views as a pure asset management shop, offers a “significant value opportunity” for patient, long-term investors.
SJP also received a nod from The Share Centre this week, which recommended it as a good buy for medium-risk investors.
The growing optimism for SLA and SJP among City traders is a bright spot among an otherwise downbeat picture for projected earnings at UK fund groups.
Analysts have slashed their short-term earnings forecasts for asset managers across the board, with Jupiter Asset Management receiving the harshest downgrades to its EPS.
SJP asset gathering
Numis has set a target price for SJP of 1453p, over 30% higher than its current share price of 1100p on the basis that the business is “consistent” and “resilient” enough to meet its ambitious growth targets while retaining its client base.
“We believe that the business will continue to demonstrate that it is one of the most consistent and resilient asset gatherers (and retainers), regardless of the economic conditions,” explained David McCann, Numis analyst.
Numis expects SJP to have been similarly resistant over the volatile first quarter, which has tripped up large swathes of funds.
It predicts the UK wealth manager will post funds under management of £89.5bn in its Q1 update on 24 April, with a quarterly net flow of £2.4bn and performance of -£3.6bn.
Based on SJP’s gross flow growth target of 15% to 20% per annum, this should translate into 10 to 15% p.a. net organic growth, 15 to 20% total assets under management (AUM) growth and roughly 15 to 20% cash profit /dividend growth, the stock broker said.
“In this regard, we view the shares as offering good growth at a reasonable price,” said McCann.
The Share Centre, meanwhile, highlighted the wealth manager’s growing presence in Asia and prime position in the individual savings account (ISA) financial advice space as key reasons for purchasing the stock.
“Recently positioning itself as an international business, STJ’s growth is showing no signs of slowing,” said Graham Spooner, investment research analyst at the stock broker.
“The group is expected to benefit further from the growing middle class in Asia and the Rowan Dartington business may enhance its position at home.
“It is well positioned to benefit from the increased demand for financial advice on individual savings; this, combined with an expansion in business into Asian markets, offers investors a solid platform to capitalise from.”
SLA materially undervalued
Although SLA’s share price has risen 7% since Numis put out its report, from 356p to 381p, this is still 94p below its target price for the FTSE 100 life insurer of 475p.
In Numis’ view SLA is “now as much a collection of investments as it is an operating business involved in asset management” and as such, its current share price “materially undervalues the group”.
Numis puts the value of the entire group closer to 475p per share, after tallying up the value of its investments, including the stake it now owns in Phoenix Group, at 299p and the operating businesses, among them Aberdeen Standard Investments, at 175p per share.
As SLA continues on its path toward becoming a more “asset-lite” business, Numis argued it could provide a major boon to patient shareholders over time as “the investment case evolves to that of a pure play asset manager.”
However, in the shorter-term, the broker cut its projections for SLA’s EPS by 3% in FY 18/19 to 25.3p and 22.6p. It also expects ASI to be less profitable in 2018, taking in £810m versus £934m the year before and predicts its assets under management will fall from £303.9bn to £296bn by the end of this year.
