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UK investment platform AJ Bell has reported a 50 per cent rise in pre-tax profits and record revenues in its latest financial year, mostly thanks to interest earned on cash in customer accounts.
For the year ending September 30, AJ Bell made a profit of £88mn on revenues of £218mn, exceeding analyst expectations, while customer numbers increased by 50,000 year-on-year to more than 475,000. However, net inflows fell to £4.2bn, from £5.8bn the year before.
Chief executive Michael Summersgill said the business had “continued to perform strongly against the current backdrop of elevated inflation and interest rates”. The share price was up 17 per cent in lunchtime trading in London.
Summersgill told the Financial Times that customers had been keen on gilts, buying more than £500mn of them in the most recent financial year. Investors have been attracted to these types of fixed income products, which include bonds and money market funds, in the current interest rate environment.
“We were moving from one extreme market economic environment in 2021 through to another very different extreme macroeconomic environment,” said Summersgill. “Gilts have been the story of our 2023.”
He added that customers had been “seeking those cash-like returns from gilts and from money market funds and from other fixed income products at a time when returns have been increasing . . . and equity valuations have been suppressed”.
But he said that trend appeared to be coming to an end. “In recent months you have seen money moving back into equities as expectations about future rate reductions have started to come to the fore.”
Summersgill said that a 58 per cent increase in “ad valorem revenue” to £161mn this year was partly derived from interest earned on customer cash held on the platform. Revenue from share dealing fell 17 per cent to £27mn because of lower trading volumes.
Summersgill, who took the role in October 2022 after the FTSE 250 company’s co-founder Andy Bell stepped down, defended the rise in interest earned from customer cash, saying only 6 per cent of platform assets were cash rather than investments and that the industry tended to follow high street bank interest rates.
“If you look at our overall revenue margin, it’s just under 30 basis points,” he added.
Jefferies analysts said the results were a “positive surprise”, adding that inflows were stronger than for competitors. But they added that the company’s costs were higher than they had expected.
Numis analysts said investments in technology, including the ability to buy gilts online as well as over the phone, had paid off.
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