City round-up: AJ Bell; Franchise Brands; Frasers and THG
Manchester investment platform, AJ Bell, has submitted proposals to the new government’s Treasury team to encourage more investment in stocks and shares ISAs.
The news comes in the firm’s third quarter trading update for the period ending June 30, 2024, which revealed a continuation of the strong momentum during the year.
Today’s update showed customer numbers increased by 25,000 in the quarter to close at 528,000, up 13% in the past year. Total advised customers of 168,000 was up seven per cent in the past year, while total D2C (direct to consumer) customers of 360,000 was up 17% in the past year.
Assets under administration (AUA) closed at £83.7bn were up 20% over the previous year.
Gross and net inflows across the platform were significantly higher than the prior year, reflecting a continuation of the strong momentum reported in the previous quarter.
Gross inflows in the quarter were £3.7bn (2023: £2.4bn) and net inflows in the quarter were £1.7bn (2023: £1.1bn). The firm reported favourable market movements of two per cent of opening AUA.
D2C growth included a one-off migration from a third party D2C platform, representing 7,000 customers with an average portfolio of £4,000.
Assets under management (AUM) increased to £6.3bn, up 47% over the past year and 9% in the quarter, with net inflows in the quarter of £0.4bn in line with the prior year (2023: £0.4bn).
Chief executive, Michael Summersgill, said: “The third quarter of our financial year saw a continuation of the strong momentum reported in our previous update. Our strategy of serving both the advised and D2C markets helped us to attract a significant number of new customers and assets from both sub-sectors of the growing platform market. Total platform customers increased by 25,000 in the quarter whilst net inflows were 55% higher than the comparative period at £1.7bn. This helped to drive platform AUA to a record £83.7bn, 20% higher than a year ago.
“Our investments business continues to go from strength to strength. Net inflows of £0.4bn into AJ Bell investment solutions resulted in total AUM surpassing £6bn for the first time. Our ongoing success in this area reflects our approach of offering simple, low cost, multi-asset solutions which also benefit from our track record of delivering excellent long term investment performance.
“Recent stock market performance has boosted confidence amongst D2C customers, resulting in higher levels of dealing activity in recent months, with international dealing activity being particularly strong. Our ongoing investment in our brand and products, including recent price reductions, has fuelled customer growth with the organic increase in D2C customers in Q3 being more than double the level achieved in the prior year.”
He added: “AJ Bell’s purpose is to help people invest. However, many people are put off investing due to a lack of confidence, not helped by the complexity of the UK investments market. This has led to a situation where around three million people are holding at least £20,000 in their cash ISA but nothing in a stocks and shares ISA, according to HMRC figures.
“We are actively engaging with the newly-elected government on their pledge to support greater retail participation in capital markets and increase the number of people using stocks and shares ISAs. Having long campaigned for simplification of the ISA system, we have, this week, put forward proposals to the new Treasury team in which we call for a move to a single ISA wrapper for cash and investments, making it easier for savers to start investing.
“To further help this cohort of potential investors, we recently launched a 5.09% AER interest rate for ISA and Lifetime ISA accounts held on our Dodl investment app, enabling customers to earn an attractive return on their cash whilst at the same time building knowledge until they feel ready to start investing.
“We enter the final quarter of our financial year with strong momentum. Our dual-channel strategy and continued investment into our brand, technology and products puts us in an excellent position to capture further market share gains in both the advised and D2C platform markets.”
Analysts at investment bank Panmure Liberum issued a Buy call on AJ Bell’s shares after today’s announcement.
In their report, James Allen, Rae Maile and Jon Byrne, said: “AJ Bell’s Q3 shows another strong quarter for net inflows, outperforming peers in the process.
“In the mix, Advised was again steady, while D2C was standout given improving investor sentiment and the return of dealing volumes to long term averages. Customer numbers increased by 13%, with only a c.one per cent benefit from customers acquired from a small competitor within that, indicating the D2C brand investment is paying off.
“Given the strength of flows and markets in Q3, we increase our FY 24 EPS by three per cent with similar upgrades to outer years. The sector re-rating is gathering pace and private equity interest in Hargreaves Lansdown suggests outsiders see significant value in the sector.
“Labour has stated its intention to simplify pensions and any similar help for the ISA market should increase appetite for investing and provide further support for long term growth.
AJ Bell’s shares closed yesterday at 397p per share, and Panmure Liberum has set a target price of 490p.
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Filta franchise
Franchise Brands, the Macclesfield-based multi-brand franchise business, said the group is trading within market expectations, in an update today.
It will hold its Annual General Meeting this morning, at which executive chairman, Stephen Hemsley, will provide the following update: “The resilient underlying demand for the group’s essential reactive services means that the business continues to perform in line with current market expectations for 2024. This enables us to generate both the profitability and the cash flow required to service and reduce the debt taken on to fund the Pirtek Europe acquisition.
“System sales in the first half of the year increased by 41% to £206m (2023: £146m). On a like-for-like basis, system sales grew by six per cent in the period in our core franchise brands of Pirtek, Metro Rod/Metro Plumb and Filta, in local currency and excluding used oil sales.
“As indicated in the recent 2023 final results announcement, Filta International’s income from the sales of used cooking oil in the first half of 2024 was impacted by a 28% fall in the average price, which was only partially compensated for by a 15% increase in volume in the period. As part of the ‘FiltaMax’ strategic growth initiatives, the range of services offered to our commercial kitchen customer base is being expanded with the addition of new bulk virgin oil sales and an eco-friendly kitchen cleaning service, which will reduce the impact of used oil sales in the future.
“As a predominantly franchised business, the group is highly cash generative, and Adjusted net debt at the end of the first half of 2024 is anticipated to be below £70m. Based on current market expectations for 2024, this represents a multiple of Adjusted net debt to Adjusted EBITDA of less than two times, in line with the medium term strategic model outlined at our Capital Markets Day in February 2024.
“The short term operational focus of the business remains on integrating the group’s businesses and repaying the Pirtek Europe acquisition debt. A particular focus will be migrating the business onto a common IT platform that will be managed centrally. We believe this will be key to unlocking the benefits of operational gearing and will play a significant part in underpinning future margin expansion.
“We see significant growth potential for our principal franchise brands of Pirtek, Metro Rod/Metro Plumb and Filta, which currently have small shares of large markets, as we expand their range of services and geographical penetration and cross-sell to our large customer base.
“The Board confirms that the group is trading within the range of current market expectations for 2024 of Adjusted EBITDA of £35.7m to £37.2m.
“We will provide a further update to the market in our half-year financial report, which is due to be published in September.”
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Myprotein
Retail giant Frasers Group hailed its new third party partnership with Manchester-based online retailer THG as a major growth opportunity as it released its annual results to the stock market this morning.
Michael Murray, chief executive of Frasers Group, described the year as “a break-out year for building Frasers’ future growth.”
“As well as delivering a strong trading performance, particularly from Sports Direct, we made significant progress with our Elevation Strategy. We expanded our retail ecosystem, establishing valuable partnerships with new brands. Our brand relationships have never been stronger, giving us invaluable support as we continue the international expansion of our business. We invested in group-wide operational efficiencies in warehouse automation and digital infrastructure, which we expect to yield a tangible impact as early as FY25. And we generated new growth opportunities with the rollout of Frasers Plus, including recently signing our first third party partner in THG.”
In June THG sold its luxury division, including the retail brand Coggles to Frasers for £43m and continue to provide ecommerce and fulfilment services through its Ingenuity platform.
A wider deal for Ingenuity to service Frasers in Australia, and sell MyProtein products in Sports Direct stores “further broadens the Myprotein brand appeal, bringing the rapidly growing Hyrox community to both Myprotein and Sports Direct alike” the company said.
Also thrown into the deal is an agreement for Frasers credit and loyalty platform, Frasers Plus, to be integrated into Ingenuity’s checkout and be available to both THG’s Beauty and Nutrition customers, as well as to Ingenuity clients.
The figures today also revealed that margins were hit by surplus inventory from businesses acquired from JD Sports and the impact of continuing closures of legacy House of Fraser stores leading to a reduction in gross margin to 35.8%. This was offset by overheads savings arising from the closure of House of Fraser stores and acquired businesses being integrated into the Group.
