Uncovering AJ Bell: A Strong Performer in the FTSE 250
LON: AJB
Dear reader,
A FTSE 250 company with Strong revenue growth, more customers and more profit. Could AJ bell be a hidden gem in the FTSE 250?
Not currently in the portfolio, this is a very interesting company that seemingly stands out from its competitors like Hargreaves Lansdown, abrdn (II) & Schroders.
Sector: Capital Markets
Dividend Yield: 2.71%
P/E Ratio: 20.34
P/B Ratio: 9.31
Debt/Equity Ratio: 0.06
PEG Ratio: 2
AJ Bell is one of the UK’s leading investment platforms, established in 1995. The company provides investment administration, dealing, and custody services. With a focus on accessibility and affordability, AJ Bell offers services tailored to both direct-to-consumer (D2C) clients and financial advisors. Their investment options include pensions, ISAs, and general investment accounts.
Business Model
AJ Bell’s business model is centered around providing investment platform services to both direct-to-consumer (D2C) clients and financial advisors. They generate revenue primarily through:
Platform Fees: Charged as a percentage of assets under administration (AUA). These fees are collected from customers who use AJ Bell’s investment platforms, such as ISAs, pensions, and general investment accounts.
Transaction Fees: Applied to trades and other investment activities.
Fund Management: Earnings from managing and administering third-party investment funds available on their platform.
Advisory Services: Offering financial advisory services that may include consultations and investment planning for clients.
Income Statement
AJ Bell plc delivered robust revenue growth of 23%, reaching £269.4 million in FY24 compared to FY23's £218.2 million. The company benefited significantly from increased interest income, custody fees, and transactional fees amidst a more favorable macroeconomic environment. Profit before tax (PBT) surged by 29%, standing at £113.3 million, driven by operational efficiencies and scalability. AJ Bell's PBT margin also improved by 1.8 percentage points, reflecting a disciplined approach to cost management and sustained investment in its propositions.
*Revenue chart (https://www.ajbell.co.uk/group/sites/ajbell.co.uk/files/accounts/FY24-annual-report.pdf)
Balance Sheet
AJ Bell plc’s FY24 balance sheet highlights its strong financial foundation, showcasing prudent management and resilience in a competitive market. The company maintained its materially debt-free status, with cash balances rising to £196.7 million, underscoring its robust liquidity. Total equity increased due to retained earnings and disciplined capital allocation, which included funding a progressive dividend policy of 12.5p per share and initiating a £30 million share buyback plan. This balance sheet strength supports AJ Bell’s dual goals of sustaining growth and delivering value to shareholders while ensuring it meets regulatory capital requirements effectively.
*AUM (https://www.ajbell.co.uk/group/sites/ajbell.co.uk/files/accounts/FY24-annual-report.pdf)
Cash Flow
AJ Bell plc’s FY24 cash flow statement reflects its strong operational performance and disciplined financial management. Net cash generated from operations amounted to £96.3 million, driven by the company’s capital-light business model and robust profitability. Capital expenditures were modest, aligning with AJ Bell’s strategy of maintaining efficiency while supporting necessary platform and technology investments. The company’s ability to generate significant free cash flow allowed it to fund a progressive total dividend of 12.5p per share and initiate a £30 million share buyback program, all while maintaining cash balances of £196.7 million at year-end. This highlights the company’s capacity to support both shareholder returns and future growth initiatives without compromising liquidity.
Looking at the share price over 1 year its up +52% however, only up 13% in 5 years.
Growth:
AJ Bell plc demonstrated impressive growth in FY24, driven by strong customer acquisition and increased assets under administration (AUA). Platform customers rose by 14% to 542,000, with net inflows of £6.1 billion, a 45% increase compared to the prior year. This growth propelled AUA to a record £86.5 billion, reflecting a 22% year-on-year increase. The company’s dual-channel approach, targeting both advised and direct-to-consumer markets, continues to capitalize on the structural growth opportunities within the UK investment platform market, bolstered by a rebound in retail investor confidence.
*Platform growth(https://www.ajbell.co.uk/group/sites/ajbell.co.uk/files/accounts/FY24-annual-report.pdf)
Revenue growth mirrored operational expansion, rising 23% to £269.4 million, fueled by higher interest income and increased transactional and custody fees. AJ Bell also recorded a 29% increase in profit before tax (PBT), underscoring the scalability of its platform and disciplined cost management. The company’s investments in its propositions, including pricing reductions and enhanced digital capabilities, have strengthened its competitive positioning while supporting customer growth and retention. With a clear strategy focused on scalability and efficiency, AJ Bell is well-positioned to sustain its growth trajectory in the evolving investment landscape.
Future growth:
AJ Bell plc’s future growth prospects are tied to structural trends in the UK investment platform market, such as increasing individual responsibility for retirement savings and the ongoing migration of assets from legacy providers to platforms. The company’s focus on dual-channel offerings in both advised and direct-to-consumer markets positions it to benefit from these shifts. With the UK platform market estimated at approximately £3 trillion, there remains a substantial pool of off-platform assets to capture.
The rise of DIY investors:
“Market size and growth
There was £392 billion in the DIY investment market as at Q4 2023 - a growth of 14% over the year.
There has been a 56% growth in customer accounts since 2020.
There were over 10.2 million accounts in the UK as at Q4 2023”*.
*https://www.boringmoneybusiness.co.uk/reports/online-investing-report-2024/#:~:text=Market%20size%20and%20growth,in%20customer%20accounts%20since%202020.
To support growth, AJ Bell is investing in technology, enhancing its digital propositions, and expanding its product range, such as AJ Bell Touch for advisers. However, the company faces potential challenges from macroeconomic uncertainties, regulatory changes, and competitive pressures. Managing these dynamics while maintaining efficiency and competitive pricing will be critical to achieving its long-term objectives. AJ Bell’s ability to balance these factors will determine its success in navigating an evolving market environment.
(https://www.ajbell.co.uk/group/sites/ajbell.co.uk/files/accounts/FY24-annual-report.pdf)
Interactive Investor vs AJ Bell: A 2024 Comparison
Interactive Investor (ii) offers low flat-rate fees, making it cost-effective for active traders, with annual costs as low as £59.88 for 12 trades. In contrast, AJ Bell’s fees are higher, especially for larger portfolios, though its Dodl app provides a cheaper, user-friendly option. Both platforms offer a wide range of investments, but ii is generally less expensive for share dealing.
Risks:
AJ Bell faces multiple risks that could impact its growth and market position. Regulatory changes, such as those affecting pensions and ISAs, could alter the attractiveness of key products and increase compliance costs. Macroeconomic headwinds, including higher interest rates, pose challenges for new contributions as households prioritize day-to-day expenditures over investments. Additionally, rising competition from both established platforms and innovative new entrants places pressure on pricing, customer retention, and acquisition costs. While AJ Bell has benefited from its strong brand and operational efficiency, its ability to navigate these evolving risks will be critical to maintaining its market leadership and delivering long-term shareholder value.
The End
If you'd like to dive deeper into AJ Bell's most recent results, I've referenced them throughout the article.
I really like AJ Bell's business model, its impressive growth, and the solid numbers behind it. This is definitely a company I'll be keeping a close eye on. That said, I remain cautious given the potential impact of broader economic factors on its performance in the current market.
Nonetheless, AJ Bell is a well-run and profitable business that is likely to continue growing over the long term.
Thanks for reading,
Ollz
The information provided in this article is for informational purposes only and reflects my personal opinions and analyses. It should not be considered financial advice or a recommendation to buy or sell any securities. Investing in the stock market involves risks, and past performance is not indicative of future results. Readers are encouraged to conduct their own research and consult with a qualified financial advisor before making any investment decisions. I do not assume any responsibility for any financial losses or consequences that may arise from reliance on the information provided herein.