personal finance

Online investment platforms defy gloomy London markets


Online investment platforms are defying a desolate market for London listings, with AJ Bell the third to take the plunge this year.

The Manchester-based group, used by investors and financial advisers, floated on the London Stock Exchange on Friday, with a market capitalisation of £651m. Following the “heavily oversubscribed” initial public offering, its shares rallied by a third to 220p.

The float followed the listings of IntegraFin, which owns Transact, a platform used by financial advisers and was the first UK company to list this year, with a market value of £650m; and smaller rival Nucleus, which joined Aim with a market cap of £140m in the summer.

Online platforms have benefited from sweeping reforms that handed individuals full control of their pension pots for the first time in 2015, allowing customers and their financial advisers to pick and choose stocks and funds.

Mike Barrett, consultant at Lang Cat consultancy, said pension freedoms had been “rocket fuel” for the platform sector, with many converting old-style pensions into more flexible ones on platforms.

AJ Bell commands about a 4 per cent share of the DIY investment market, a far smaller chunk than Hargreaves Lansdown’s 42 per cent, and has assets of £46bn across its advised and non-advised platforms.

But it has grown at a rapid rate, having more than doubled assets under management in the past three years and increased pre-tax profits by 31 per cent in its most recent financial year, to £28.4m.

Its flotation came at a difficult time for London’s markets, which have been rocked by an October sell-off and are bracing for the outcome of the UK’s Brexit vote on December 11.

It also followed a barren period for listings. London’s IPO activity almost halved in volume in the third quarter of the year, according to EY, and deals slumped in value by 71 per cent. The main market had just eight IPOs in the three months to September, raising £780m, 61 per cent less than the more than £2bn raised at the same point last year.

In October, two high-profile London flotations — Aston Martin and Funding Circle — faltered, with share prices closing down on their first days of trade, which bankers speculated could prompt a halt on new deals this year.

Stuart Duncan, analyst at Peel Hunt, said investment platforms were “a good part of the market to be in because of structural growth”. They benefit from “demographic trends and the need to save more for retirement, low interest rates in deposit and savings accounts and the multi-decade trend of pension freedoms,” he added.

About 2.2m new retail customers opened accounts with platforms between 2013 and 2017, according to the financial regulator. Meanwhile, the advised platform market grew from £123bn in 2012 to £350bn by September 2017, and is projected to more than double again in assets to £745bn by the end of 2021, according to Fundscape.

Both IntegraFin — which controls around £30bn in assets — and Nucleus’ IPOs were oversubscribed, according to analysts, and their share prices surged initially. However, they have since fallen back. IntegraFin’s shares remain above their initial price but Nucleus’ have fallen below.

Both companies have also recorded slowing growth in recent months in large part due to record figures last year, driven by a spike in pension transfers.

In its most recent trading update, IntegraFin posted a 2 per cent decline in inflows year-on-year for the three months to September. Nucleus blamed “volatile markets and regulatory change” for a fall in net inflows in the six months to June, compared with the same period last year.

Nucleus has lost market share in each year between 2016 and 2018, according to Lang Cat, while Transact has gained pace to control about 8 per cent of the advised market.

However, even as pension transfers slow, the platform market remains on track to grow by a rate of 15 per cent annually.

In the DIY investing market, Hargreaves Lansdown is expected to take much of those gains. The group has held on to market share in recent years and remains the most highly valued platform, trading on a price/earnings multiple of 31 times 2019 forecast earnings, according to Peel Hunt.

“This is a very competitive market and it is hard to grow market share,” said Mr Barrett. “There are a lot of well-established, heavily used players.”

AJ Bell’s pricing puts it on a PE multiple of about 22 times 2019 earnings forecasts, comparable to IntegraFin’s multiple of 23 times.

Chief executive Andy Bell said: “We knew that we were going to IPO in the eye of the Brexit storm and we have accepted that there would be market turbulence. But nothing was going to deter me.

“There will inevitably be talk around the IPO valuation. But we think you’re buying a really good quality business. The market loves the platform story.”



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