St. James’s Place (LSE:STJ, Financial) is the U.K.’s largest wealth management firm, with 4,626 advisors, 900,000 clients, and £142 billion in assets under management as of September 2022.The company’s core clients are individuals who have £50,000-5 million of investible assets, a range that includes the mass affluent and the lower end of the high-net-worth target market. Pension reforms, coupled with complicated estate and inheritance planning requirements, have increasingly driven individuals in the U.K. toward independent, third-party investment advice. As the largest provider of this advice and a company with a very strong and trusted brand, St. James Place is well positioned to sustain high rates of growth. Over the past five years, the company has achieved average net new money growth of nearly 10% per year while its assets under management have increased at an average rate of 15.5% per year, and we believe the company’s long-term outlook remains very attractive. Importantly, its new IT infrastructure should significantly lower the company’s operating costs and enable its strong top-line growth to flow through to its net income growth. As a wealth management firm, St. James Place’s business model requires little capital and generates a very high return on capital employed as well as excellent cash conversion. In fact, the company regularly pays out more than 70% of its cash earnings in the form of dividends, and its current dividend yield is nearly 5%. Despite St. James Place’s compelling medium- and long-term outlook, recent equity market weakness has pushed its stock down to < 11x 2023 cash earnings per share. We believe this significantly undervalues the company’s future growth opportunities, and we took advantage of this short-term price weakness to add St. James Place to the portfolio.
From David Herro (Trades, Portfolio)'s Oakmark Global Fund fourth-quarter 2022 commentary.
