St. James Place share price rebounded: will the gains hold?

St. James Place (LON: STJ) share price has staged a strong comeback, two months after it was kicked out of the blue-chip FTSE 100 index. It has rallied by over 81% from its lowest point this year, giving it a market cap of over £3.87 billion.

St. James Place’s key challenges

St. James Place, the biggest wealth manager in the UK, has been under pressure in the past few years as its stock plummeted by over 74% from its highest point in 2023 to its lowest point this year.

The company has faced three important challenges. First, the Financial Conduct Authority (FCA) promulgated the consumer duty rules governing the wealth management industry. According to the FCA, companies are now required to be more transparent about their pricing and to ensure that customers get value for their money.

St. James Place responded to these new guidelines by slashing prices, which led to lower revenues and profitability.

Second, the firm has been dealing with refunds, which have cost it millions of pounds. It has set aside over £426 million to refund clients who have complained about its services and advice.

Finally, the transition from active to passive investments has slowed its inflows and reduced its revenue growth. This trend has also impacted other companies in the industry like Abrdn, Hargreaves Lansdown, and Quilter.

Strong earnings

The main catalyst for the St. James Place share price was its stronger-than-expected earnings on Wednesday. In a statement, the company said that its gross inflows rose to over £8.8 billion in the first half of the year, a slight increase from the £8 billion it made a year earlier. Net inflows dropped to £1.9 billion, higher than the expected £1.3 billion.

The company is also attracting clients in its business as the number of new ones rose by 3% to 988,000. Most importantly, St. James Place now sits on over £181 billion in assets under management, making it the biggest wealth manager in the country.

Most of its funds are in the fast-growing pensions business, which has over $96 billion in assets followed by UT/ISA and DFM, which have over £47.7 billion, and its investment division, which has over £37.80 billion.

The STJ stock also rose after the company’s results showed that its business was turning the corner. Its profit after tax was £165.1 million, up from £161.7 million in the same period in 2023.

The management believes that the company could continue growing in the coming years even with the reduced fees. Using its estimates, St. James Place could double its underlying profit by 2030.

St. James Place is also working to save costs. If all goes well, it hopes to slash costs by about £100 million by 2027 and £500 million by 2030.

As part of its decision to reward its shareholders, STJ is working to grow the number of high net-worth customers using its platform. These customers bring in more money and often last long as clients.

Potential acquisition target

In my last article on St. James Place, I noted that the company’s valuation had become a bargain and that it could become a takeover target.

While it has gone through a rough patch, the company has demonstrated that it can grow its business over time.

At the same time, its valuation has become cheap in the past few years. It now has a market cap of over £3.7 billion, which is cheap since it could deliver a cash profit of over £400 million this year.

There are signs that foreign investors are interested in UK companies. Hargreaves Lansdown, one of the top companies in the industry, has received a £5.4 billion bid from CVC, the giant Swedish private equity company.

Other British companies have also been acquired recently. Apollo, the giant private equity company, is acquiring Evri, a parcel delivery company that competes with Royal Mail.

Last month, Blackrock, the biggest investment company in the world, acquired Prequin, a data platform for $3.2 billion.

DS Smith, a leading packaging company, was also bought by International Paper in a £7.2 billion deal.

STJ chart by TradingView

The weekly chart shows that the STJ share price bottomed at 385p earlier this year and has now bounced back to over 700p. Along the way, it has risen above the key resistance point at 513p, its lowest swng in 2020.

STJ has also rallied above the 50-week and 25-week moving averages, meaning that bulls are now in control. The Relative Strength Index (RSI) and the MACD indicators have all pointed upward.

Therefore, the stock will likely continue rising as buyers target the key resistance point at 800p This rebound will happen as investors bet on an eventual recovery and turnaround.