AJ Bell reports strong profits and fund flows

It was an interesting half for AJ Bell (AJB) as the share and fund trading platform reported unusually strong profit numbers as it attracted far higher net fund inflows than at this point last year. Net fund flows were 45 per cent higher at £2.9bn, to take total assets under administration (AuA) to a record £80.3bn.

However, there was an element of smoke and mirrors to the first-half performance. Management explained that the results reflected the “regulatory uncertainty” around retention of part of the interest earned on customers’ uninvested cash. The “uncertainty” relates to the fact that regulators have taken issue with excess fees being charged on deposits.

The major platforms are not implicated in the practice of charging double fees, but the company decided to reduce some of its charges and pay higher interest on deposits anyway. However, the lag time in implementing the changes meant the first-half results were “elevated”, particularly the pre-tax profit margin of 46.8 per cent. Management said this would moderate as the year progressed and the new charging structure bedded in. The only other notable change was a move to a progressive dividend policy from the current fixed ratio of 65 per cent of earnings.

The full-year pre-tax profit margin is forecast at around 40 per cent.

Broker Investec rates AJ Bell’s shares at a forward price/earnings ratio of 19.4, falling to 18.1 for 2025. The shares have performed well since the start of the year, in part due to bid interest in the platform, but AJ Bell has proved to be a consistent performer. Buy.

Last IC view: Buy, 284p, 7 Dec 2023