AJ Bell: DIY investment platform runs around rivals

Featured Sponsor

Store	Link	Sample Product
UK Artful Impressions	Premiere Etsy Store

Rudimentary upstarts often run circles around established rivals. Welcome to the world of UK investment platforms. Within this, AJ Bell is gaining market share. Their future growth trajectory leaves their biggest rival, Hargreaves Lansdown, in a cocked hat.

Investment platforms are growing faster than household wealth. This secular trend has strong support. The UK has abolished commission-based financial sales while providing strong tax incentives to save. New technology has made investing in DIY online relatively easy.

Andy Bell co-founded the investment platform in 1995, long after Hargreaves Lansdown started. AJ Bell has a lot going for him. Low fees and superior service mean it has been growing at twice the market rate for the past decade.

Despite macro headwinds, AJ Bell performed strongly in the first half of your fiscal year. Rising mortgage rates and costs have squeezed households, meaning net new assets were £2bn, a third less than a year ago. But the customer base continues to grow and has reached 455,008. Assets under management reached £68.6bn, up 7% from the start of the year.

Revenue rose an impressive 37 per cent to £104m. The figure was boosted by net interest income from treasury management. This is a more variable, and potentially lower quality, revenue stream than administration fees. AJ Bell doesn’t say how much exactly this contributed. But he believes that normalizing cash balances may compress revenue margins next year.

AJ Bell, at 21 times this year’s earnings, may seem expensive compared to Hargreaves Lansdown at 12. But his growth prospects justify the premium.

The group is counting on three-year compound annual growth of 20 percent in expected earnings per share. That puts AJ Bell at a price-to-earnings growth ratio of around 1, similar to Hargreaves Lansdown. The incumbent is forecast to deliver 3-year EPS growth of 12 percent, according to Liberum’s James Allen.

To the beleaguered Hargreaves Lansdown, the words of Shakespeare, via Stormzy, apply: heavy is the head that wears the crown.