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I don't know anyone reading this, but I love companies that quietly continue to grow the wealth of their owners without fanfare. That has certainly been the case for one FTSE 250 firm during the last 12 months.
Big profits
The stock in question is an investment platform provider. AJ Bell (LSE: AJB).
In the spirit of full disclosure, I once owned a portion of this company, attracted by the growth story, high margins, and impressive returns on capital it was generating.
Fortunately, tickets were sold out before the pandemic. However, I promised to return if I saw a good opportunity.
Unfortunately, I haven't been able to hit the Buy button since then. If you had done it this time last year, you would be looking at an 84% gain. And that's not counting the dividends paid during this period!
For perspective, the FTSE 250 index is up 19%. Don't get me wrong, that's a great outcome for anyone who has a tracker fund and decides not to pick their own stocks.
But I know which camp I'd rather be in.
Record numbers
Today's trading update from the company goes some way to explaining why the share price has been performing so well.
AJ Bell closed FY24 with a record £86.5bn in assets under management. That's a 22% jump on the year. The number of customers also increased by 14% to a record 542,000.
Net cash inflow (the amount of money coming in after deducting the amount going out) was particularly encouraging. This amounted to £6.1bn, up 45% on the previous year. If that's not a sign that investor confidence is returning in light of falling inflation, I'm not sure what is.
But could there be problems in the future?
Calm before the storm
AJ Bell will confirm full year figures on December 5. Before that, we had the first budget from new chancellor Rachel Reeves.
Now, I think it's fair to say that few investors are exactly looking forward to October 30th. In fact, the company said today that it had seen “a notable change in both clients' pension contributions and tax-free cash withdrawals”while the media does everything it can to whip everyone into a frenzy over whatever may be announced. So I wouldn't be surprised if the business (and share price) faltered a bit in the first quarter.
Focus on the long term
On the other hand, I'm a fool. This means that I am more interested in the long-term prospects of a company. So the most important thing for me is the level of competition AJ Bell faces and whether he can continue to grow from here.
On this front, it's a case of so far, so good, with the company seemingly doing a stellar job of increasing brand awareness and taking the fight to its rivals by cutting costs. If interest rates continue to fall (making cash savings less attractive), I am optimistic that customer numbers will continue to increase. An aging population is likely to become increasingly aware of the need to accumulate wealth for retirement as well.
However, AJ Bell can't rest on his laurels. There is always the risk that existing customers will be tempted to walk away.
A forecast price-to-earnings (P/E) ratio of 23 still seems reasonable to me considering the quality of this stock. But I'll re-evaluate once that potentially fatal budget is passed.
