St James’s Place: FY05 results

9:42 a.m. Tue 28 Feb 2006

St James’s Place announced strong results for the year to December 2005. On an IFRS basis, pre-tax profits jumped 124% to £127.1m. Although the company has performed well, changes in accounting rules (requiring policy holder tax to be ‘grossed up’) tend to cause high volatility in reported earnings – in this case it added £83m to the bottom line!

Stripping out this factor, the company earnings are still good, growing 26% to £43.2m. The company also reported that new business (on an APE basis) grew 25% during the year whilst funds under management rose by 29% to £12.3bn.

The company (and the insurance industry as a whole) is benefiting from a number of factors including:

Demographics - people are living longer and as a result time in retirement is both longer and more expensive,

Economics - the burden of funding pensions is shifting from companies to individuals particularly following the decline of defined benefit schemes,

Property - the increase in residential property valuations have resulted in growing numbers of people whose estates now fall into the inheritance tax net, the perception that the property market is overvalued is also shifting investment elsewhere.

The company reported a 33% growth in single premium business during the year ( including a 36% rise in pension business) along with a 36% increase in unit trust business, the drivers being the factors listed above.

These factors are likely to remain reasonably strong drivers of growth for the industry in the medium term. St James’s Place, unlike a number of its peers has a well earned reputation for prudence, which puts it in a good position to reap the benefits of growth in the sector.

Prospects look good, the share trades at 310p, on a prospective PE (2006 earnings) of 15.1x, at the upper end of the sector range, the premium being warranted by the steady track record. The yield is a negligible 0.1%.