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Panmure Gordon: 100 billion reasons to buy SJP

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Panmure Gordon: 100 billion reasons to buy SJP

Panmure Gordon has issued an extremely bullish note on St James's Place a week before it unveils its third quarter trading figures.

Despite relatively flat investment markets, analyst Barrie Cornes expects SJP to have finally broken the £100 billion mark in the third quarter on the back of strong inflows. 

Cornes believes the recent sell-off in SJP shares has created an excellent buying opportunity given the strength of the business. 

'The share price has been impacted by the recent fall in investment markets, but in our view this has created an excellent buying opportunity given the valuation and a 2019 (final) dividend yield of 5.5%,' he said. 

Panmure's note drew no reference to SJP's controversial charging structure, which many feel is unsustainable. 

Last month Baillie Gifford fund manager Milena Mileva admitted SJP's charges were too high after she was forced to defend her recent purchase of the stock to an investor. 

'The level of the fees is very high and the level will have to come down over the next 15 years,' she said.

'There is a legitimate question mark over the absolute level of the fees. I do have sympathy with that argument.'

SJP's assets are held within a segregated 36-strong fund range, which it outsources to fund management companies. 

A recent Citywire  investigation into the range revealed just how much SJP earns from these funds, which on average stands at four times the amount managers that actually run the funds earn. In one instance, SJP's earnings were 38 times higher than that of the fund manager. 

In its defence, SJP said its income pays for ‘all elements of our service'. 'This includes ongoing advice charges, all administration costs that would be covered by a platform charge elsewhere and the costs of running the fund infrastructure.'  

The Panmure note forecast gross inflows of £4.1 billion and net flows of £2.6 billion in the third quarter for SJP, representing year-on-year increases of 14.2% and 10.2% respectively. These numbers are just ahead of early consensus forecasts of £4 billion and £2.5 billion.

The  broker predicts assets under management will jump by around £16 billion from the corresponding period of 2017 to a record £101.6 billion, marginally ahead of forecasts of £100.4 billion. 

Panmure also suggests the UK Budget could give SJP extra impetus. 'Should the late October budget reduce the annual pension contribution limit from £40,000 to say £30,000, we suspect this will only serve to increase demand for SJP's advice services,' Cornes said. 

Given its prospects, Cornes described the market's current valuation of SJP as 'irrational'. Shares in the company closed at £10.39 last night, almost 20% beneath their 52-week high of £12.79.

'SJP is trading at a 10% discount to our 2018F EEV forecast of £11.68 a share, which we believe is completely irrational given the value of the new business machine that is the Partnership,' said Cornes. 

He believes shares have the potential to increase by more than a third from here to a target price of £16.57. 

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