Will the firm that helps investors buy shares be a winning investment itself ?
THIS week, Midas considers two very different stock market flotations, investment firm AJ Bell and energy efficient income trust, SEEIT.
1. AJ BELL
THE average life expectancy in the UK is just under 80 years for men and just over 80 for women. It has risen by about a decade in the past half a century and is likely to continue in the same vein over the next 50 years.
As people age, they need to save more, particularly as generous company pension schemes fall by the wayside. Many are choosing to do so using investment platforms, such as AJ Bell.
Co-founded by Andy Bell in 1995, the company has almost 200,000 customers, administers £46 billion of investments on their behalf and has delivered average annual growth of more than 25 per cent over the past six years.
Now the group intends to float on the Stock Exchange at a price of between £1.54 and £1.66 per share, valuing the entire business at up to £675 million. The deadline for applications is Tuesday and the flotation is primarily aimed at large institutions, although AJ Bell customers can also apply – after Bell himself went against bankers’ advice and said he wanted his clients to be eligible for the offer. Should they go for it? AJ Bell’s growth has been impressive. Figures for the year to September show customer numbers up 20 per cent to 198,000, revenues up 19 per cent to £89.7 million and profits up 31 per cent to £28.4 million.
The group paid a generous dividend too and intends to maintain that approach after flotation, paying out two-thirds of post-tax profits to shareholders every year.
As a business, AJ Bell differs from many competitors in that customers can either access its investment platform directly – via AJ Bell Youinvest – or through financial advisers – via AJ Bell Invest- centre. This dual approach gives the business a broad spread of customers, including many relatively affluent individuals, who use AJ Bell for Self- Invested Personal Pensions, Isas and low-cost share and bond dealing accounts.
The company is also lower cost than many peers, not least because most of the 750 employees are based in Manchester, where rents and salaries are considerably lower than in London and the South East. Following the flotation, every employee will be given 750 shares and the opportunity to subscribe for up to £2,500 worth at the flotation price over the next year. The group already has a strong, entrepreneurial culture but this is likely to motivate staff still further.
Bell himself will be reducing his stake by just 3 per cent – from 28 to 25 per cent – and will be the largest shareholder following the flotation. Encouragingly too, his parents are subscribing for shares, alongside other friends and family. MIDAS VERDICT: AJ Bell operates in a growing market and it is one of the leaders in the field. The flotation is likely to be oversubscribed so the shares should rise in the short term. Bell himself is determined to make the business even more successful and believes he can do so, even if markets become more turbulent. Short-term traders will probably do well out of this flotation but the stock should deliver for the long term too.