AJ Bell IPO- will you buy?

newlease

Any AJ Bell customers here taking part in the IPO? Why or why not?

ColdIron

I don't buy company shares but if you have Invesco Income or High Income you'll benefit from it as Barnett's funds are the largest shareholder

https://citywire.co.uk/wealth-manager/news/barnetts-bumper-aj-bell-payday-underlines-woodfords-struggles/a1180410

Malthusian

As a shareholder I would have concerns over the fact that it's the only platform (at least that I can think of) that takes Defined Benefit transfers without a positive recommendation from an adviser. Now, it's perfectly possible that none or very few of their clients will come back and complain to AJ Bell that they've lost all their money, and AJ Bell's decision to cash in where the angels feared to tread will have been a shrewd one.

However, even if you believe that AJ Bell's insistent clients know what they're doing and will suck up their losses if they didn't, you can't deny that their defined benefit transfer book is much lower quality from a complaints liability perspective than that of its rivals who insisted on positive adviser recommendations.

I don't know how significant "insistent transfer" DB is as a percentage of AJ Bell's AUA, but pension transfers that go wrong can get very expensive very quickly for a SIPP provider.

short_butt_sweet

i don't know yet. i'm only on page 107 of the prospectus.

on the plus side, AJBell's shares do remind me in many ways of HL's shares, which have done very well as an investment since they floated. in the investment platform market. already profitable (unlike many platforms!), and cash-generative. the company has no net debt.

1 obvious difference between the businesses is that the larger part of AJB's business is an advisor platform, the smaller part is a D2C platform. HL are purely D2C.

AJB have much lower margins than HL, roughly 1/3 of revenue, instead of 2/3. (i would still call 1/3 very healthy.) that comes from a combination of AJB collecting substantially less in charges as a % of AUM (assets under management), and having costs which must (i think - haven't compared figures directly) be slightly lower as a percentage of AUM. HL are going for the "waitrose" approach, AJB for being more price-competitive but still decent quality. perhaps both have their place in the platform market. (or do they?)

are AJB's management floating now because they think it's all about to go horribly wrong? i don't think so. but they have picked a moment in which the last few years' result look very good, so arguably there is more room for the "unknown unknowns" to be bad news than for them to be good news. against that, the platform market does appear to be an attractive place to be, and AJB's positioning in it looks decent.

AJB have less of their IT in-house than HL do. arguably, having more IT in-house may be an competitive advantage for HL.

1 thing i wonder about is how much AJB's "replatforming" in 2014 cost. the prospectus gives us 3 years financial results, up to 30 september 2018, so they don't include that. (could look for earlier results on the companies house site?)

Malthusian

I would go further with the parallels between HL and AJB.

HL has carved out a very nice niche for itself as the Waitrose provider. Its customers (including me) are by definition not price-conscious - within reason - so they are likely to stay there.

Below HL's level the platform market is cutthroat. If you raise your charges above the 0.25-0.3 level you are going for the HL market, and that is very difficult to do without HL's existing brand recognition and reputation for good service.

Given the choice between trying to make a profit in the mid/low price platform market and selling Big Issues on Pero's Bridge I would go for the latter.

Alliance Trust Savings tried to be a big name by charging rock bottom prices to build scale. It was a catastrophic failure. Their parent company (the investment trust of the same name) will sell the platform to you if you send in two tokens from a cereal packet.

Aegon / Cofunds tried to build a big name through acquisition. That was another catastrophic failure.

If low margins, low customer stickiness and a potential future regulatory / misselling storm is your bag, AJ Bell is probably the IPO for you.

The way to make money out of an investment platform is to run it at a loss as part of a vertically integrated St James Place style proposition - the model that Standard Life and Quilter are going for. AJB doesn't have an advice arm (AFAIK) and can't use that strategy.

EdSwippet

Malthusian wrote: »

Below HL's level the platform market is cutthroat. If you raise your charges above the 0.25-0.3 level you are going for the HL market, and that is very difficult to do without HL's existing brand recognition and reputation for good service.

I skimmed the prospectus not because I plan to buy AJ Bell stock, but because I hoped it would tease out the difference between the AUM and revenue from stock/ETF holdings and the AUM and revenue from fund holdings.

The difference in annual charges between these two for AJ Bell customers is extreme, and to my mind far greater than any differential in the cost of providing the services appears to warrant (amply demonstrated by the existence of several other flat-fee platforms!). It would be interesting to see whether the suspicion that AJ Bell is using fund investors as cash-cows is well founded.

The FSCS is reportedly looking into competition in the fund platform market, so breaking down AJ Bell revenues in this way looks like it would be an extremely useful data point for prospective buyers of AJ Bell shares. I couldn't find this information anywhere in the prospectus, though. Did I miss it, or is it just not there?

triplea35

The retail element of the IPO is exclusively available to UK-resident AJ Bell customers (not including the Channel Islands or the Isle of Man) who opened an AJ Bell account by 15 October 2018. Customers who opened an ISA with us after this date can use it to take part in the IPO because, for technical reasons, ISAs don’t have an equivalent cut-off date.

Opens the door for other private investors. I haven't subscribed/used this years ISA allowances so may have a punt for a short term gain.

Thrugelmir

Malthusian wrote: »

HL has carved out a very nice niche for itself as the Waitrose provider. Its customers (including me) are by definition not price-conscious - within reason - so they are likely to stay there.

Not a good analogy.

Waitrose has reported its seventh consecutive week of falling sales as the upmarket grocer continues to drag down John Lewis Partnership’s figures.

In the week to September 29 John Lewis Partnership saw sales drop 0.9 per cent year-on-year to £215 million.

Even the wealthy are price conscious. That's how they remain so.

Rollinghome

Malthusian wrote: »

Alliance Trust Savings tried to be a big name by charging rock bottom prices to build scale. It was a catastrophic failure. Their parent company (the investment trust of the same name) will sell the platform to you if you send in two tokens from a cereal packet.

Too late, sold to Interactive Investor some months ago. (I'd describe it as merely a dismal failure rather than a catastrophic one. The business never had that scale.)

short_butt_sweet

EdSwippet wrote: »

I skimmed the prospectus not because I plan to buy AJ Bell stock, but because I hoped it would tease out the difference between the AUM and revenue from stock/ETF holdings and the AUM and revenue from fund holdings.

The difference in annual charges between these two for AJ Bell customers is extreme, and to my mind far greater than any differential in the cost of providing the services appears to warrant (amply demonstrated by the existence of several other flat-fee platforms!). It would be interesting to see whether the suspicion that AJ Bell is using fund investors as cash-cows is well founded.

The FSCS is reportedly looking into competition in the fund platform market, so breaking down AJ Bell revenues in this way looks like it would be an extremely useful data point for prospective buyers of AJ Bell shares. I couldn't find this information anywhere in the prospectus, though. Did I miss it, or is it just not there?

i don't think it's there. i didn't see any split of AUM into funds vs shares vs cash. or revenue for each of those categories.

they did say that 53% of revenue was recurring ad valorem (which would include custody charges on both funds & shares, regardless of the lower caps on the latter; and also include retained interest on cash), and 18% was transactional (which would include dealing fees, which again applies to both funds & shares, though in this case fund dealing is cheaper).

you say the difference in charges between shares and funds is extreme, so presumably it is for your account size and usage patterns. but it may not be in general, especially if many investors who hold shares tend to over-trade.

HL, whose charging system is structured similarly to AJB (and i suspect that AJB's current charges were adopted partly with the aim of doing something similar to but mostly cheaper than HL), do break this down, and they last reported 0.41% revenue from funds, 0.32% from shares (the latter is includes holding charges, with much lower caps than for funds, and dealing charges). not a huge difference, and IMHO it hints at over-trading.

(AJB's overall revenue was 0.21% of AUM.)

short_butt_sweet

If low margins, low customer stickiness and a potential future regulatory / misselling storm is your bag, AJ Bell is probably the IPO for you.

AJB's margins look healthy; your comments there seem to be directed at the platform market in general, without looking at AJB's figures. customer retention seems OK, too. potential misselling is worth thinking about.