Investment account and share dealing platform AJ Bell’s Q2 trading update contained details of client flows in the firm’s second quarter of trading, which amounted to a net inflow of £1.50 billion.

£700 million was picked up by the retail investor division with £900 million flowing into the firm’s advisory business. The rounding item was a non-platform outflow of £100 million.

New customers grew by +5.0% in the quarter, taking platform customer growth to +21.0% over the last year.

The numbers look impressive and the annualised AUA growth rate of 14.0%, looks good on paper.

However, expectations in the market were for a run rate of +17.0% for the full year, so in fact, the growth seen in Q2 fell short of what traders were looking for.

As I recently reported the addressable market for UK direct-to-consumer investment platforms is thought to be around £3.0 trillion.

AJ Bell (read our AJ Bell Youinvest review here) now has £74.10 billion of assets under administration, which is approximately 2.50% of the total market.

That means there is plenty of room for growth, but there is also plenty of competition as well.

Andy Bell, the CEO of the business said of the update:

“Our dual-channel platform, serving the growing advised and D2C platform markets, attracted over 20,000 new customers and significant net inflows during Q2 despite weakened investor sentiment. In the last year, we have grown platform customer numbers by 21% and platform AUA by 15%, demonstrating the strength of our business model across different market conditions.”

He added that:

“Our in-house investment solutions remain popular across our platform propositions and continued to perform strongly, delivering net inflows of £223 million during the quarter. Our first five multi-asset funds recently passed their fifth anniversary, an important performance milestone, particularly for advisers. Performance of all five funds was in the top 30% when compared against their peer groups, with four being in the top quintile.”

Mr Bell also pointed to the fact the firm had been able to reduce ongoing fees for fund investors, from 50 bps or basis points to just 31 bps per annum. However, from the market standpoint, that cost reduction could be seen as a missed opportunity to increase revenues and margins at the firm.

AJ Bell stock traded down by -2.0% following the update. and over the last week, the shares are down by -6.89%.

Year to date the stock has lost more than -25.0% of its value and posted 18 new lows.

Broker comment on the update was limited, however, Shore Capital did pen a few lines noting that:

“The stock is off 17.0% since we initiated in mid-January with a 400p DCF-driven fair value, using the 1.35% risk-free rate of the time.”

The broker added that:

“Consensus has changed in that time from £158m revenues and 10.4p EPS to £158m and 10.1p, so EPS down 3%, and 2023 EPS (are) also down 3%. Our numbers will come down for the mark-to-market, while our organic growth expectations will be trimmed to account for the tougher economic environment.”

Shore Capital has retained a buy recommendation and expects AJ Bell to benefit from a rising interest rate environment.

There may be some truth in that assertion, however, the rapidly rising cost of living in the UK could reduce the number of new clients who are able to invest for their future.

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