St James’s Place has remained mum on its future plans in regards to debt issuance as its lands its first credit rating from Fitch Ratings.
The credit rating agency granted SJP an issuer rating of A meaning any bonds issued by the company will be deemed to be of high credit quality. It received an even higher “insurer financial strength” rating of A+.
SJP is currently in a closed period ahead of its half-year results and would not comment on debt issuance plans. Fitch usually initiates a rating after being contacted by an issuer, sponsor or underwriter, although it sometimes will initiate coverage on an unsolicited basis.
In the Fitch note, issued on Thursday, SJP was praised for its “strong business profile, strong capitalisation and leverage and very strong financial performance and earnings”. But Fitch deemed SJP’s focus on the UK retail savings market as a negative because the business is not diversified enough.
The ratings agency went on to state SJP’s partnership business model “provides key competitive advantages” in the UK wealth management sector. The group has the largest advice network in the UK with 4,271 advisers at the end of 2019.
“Fitch’s assessment of SJP’s competitive positioning reflects the group’s position as one of the leading UK-based retail wealth management businesses,” the note said. “The group has recorded strong growth in funds under management (FUM) with a five-year CAGR of 15%, doubling in size since 2015.”
Other metrics highlighted in the report included SJP’s return on equity of 15% in 2019 (17% in 2018) and “very strong” financial leverage ratio of 23%. Cash generation “more than adequately covers interest costs” with a fixed-charge coverage ratio of 20x in 2019, Fitch added.
Fitch expected SJP’s financial performance to remain strong and even improve in the medium term.
It highlighted that SJP waives product management charges on pension and investment new business for around six years from the point of sale and that these “gestating funds” represented around 34% of total assets under management at the end of 2019. Therefore even with no new business and stable AUM, an additional £356m would begin generating new fee revenue over the next six years.
Covid-19 was deemed one of the main risks to the SJP rating alongside a weakening in market position or net client cash flows. SJP could also face negative rating action if its total financing and commitments ratio rose above 1x from its current 0.6x or if its Solvency II coverage, currently 132% fell below 120%.
SJP’s rating is third highest under Fitch’s system and denotes a low risk of default and strong capacity to meet financial commitments.
