Investing.com - UBS Global Research in a note dated Wednesday has downgraded its rating for St. James’s Place PLC (SJP) to “neutral” from “buy,” citing a balanced risk-reward profile following increased stock appreciation year-to-date.
As per UBS, SJP’s stock has risen by more than 25% since the beginning of the year, reducing the potential for further upside. UBS analysts see only a limited 7% increase in share price potential, prompting the downgrade.
While SJP remains the preferred pick among asset gatherers, UBS favors Aviva (LON:AV) within the UK insurance sector and trading players within the UK platforms.
The investment case for SJP still carries both upside opportunities and downside risks. On the positive side, UBS projects double-digit cash earnings per share growth from 2027 onward, although the market appears to have already factored this into consensus estimates.
Client inflows remain a critical variable, with the stock price closely linked to net flow growth. UBS also notes the potential for capital returns to investors, though it estimates excess capital of less than 3% by the end of the 2026 fiscal year.
Other potential growth factors include the launch of new investment propositions targeting high-net-worth clients and the introduction of cash offerings, both of which could enhance SJP’s long-term business prospects.
On the downside, the implementation of changes to SJP’s charge structure carries the risk of disruption and unforeseen expenses. Industry-wide margin pressure is another headwind, alongside potential regulatory changes, including inheritance tax adjustments on pensions and the Financial Conduct Authority’s Advice Guidance Boundary Review.
Additionally, concerns about adviser productivity persist, with the possibility that short-term inefficiencies could lead to a decline in both adviser numbers and funds under management.
UBS forecasts a 7% compound annual growth rate in assets under management (AUM), supported by projected net inflows of 2% per year and 5% annual market returns.
Based on this trajectory, the firm expects SJP to double its earnings by 2030, reaching approximately £781 million in annual profit, which is close to the market consensus of £800 million.
The stock is currently trading at 11 times its forecasted 2027 cash earnings, with UBS estimating a fair valuation of around 12 times cash earnings.
The valuation adjustment by UBS led to a slight increase in its price target for SJP, moving to 1,180 pence from 1,175 pence per share.
The revision is attributed to minor uplifts in projected cash earnings per share, mainly due to interest savings on loans and higher margins on mature funds under management.
UBS emphasizes that while there is still some growth potential, the majority of the recovery has already been priced into the stock, justifying the downgrade from its previous bullish stance.
Despite the revised outlook, UBS maintains that SJP remains a fundamentally strong player within the UK wealth management sector.
However, near-term challenges, including charge structure revisions, regulatory uncertainties, and industry-wide pressures, suggest that the stock is now fairly valued rather than presenting a compelling buying opportunity.