UBS has reiterated its ‘buy’ rating and £1,505 price target for St James’s Place PLC (LSE:STJ), the FTSE 100 wealth manager, ahead of its third-quarter trading update on Thursday.
Analysts Nasib Ahmed, Will Hardcastle and Michael Christelis expect net inflows of £1 billion for the three months to September, 14% above the market consensus of £880 million.
The bank forecasts gross inflows of £5.5 billion, compared with a consensus of £5.2 billion, while funds under management are expected to reach £241.6 billion against an estimate of £243 billion.
However, UBS warned that weakening consumer confidence and intensifying competition for financial advisers could continue to weigh on the shares, despite the potential for a positive surprise in the upcoming figures.
Consumer confidence fell in October at its fastest rate since the Brexit vote in 2016, excluding the Covid-19 pandemic, raising concerns about demand for financial advice and the company’s ability to attract new client money.
The UK Budget on Wednesday could provide a catalyst if its measures produce a favourable market reaction, with lower government bond yields potentially supporting the business.
UBS also highlighted the risk that St James’s Place may need to offer advisers a greater share of recurring fees to retain them as competition increases.
The bank estimates advisers receive approximately 55 basis points of ongoing advice fees at St James’s Place, compared with 64 basis points at Quilter, its closest listed competitor.
Closing that nine-basis-point gap without changing client charges would reduce UBS’s estimated valuation by approximately 20%, highlighting the potential financial cost of retaining advisers.
However, UBS does not expect all client assets to be vulnerable to transfers if advisers leave, because investment bonds carry tax advantages and some pension products face early-withdrawal restrictions.
Even in an extreme scenario, the bank estimates that approximately 60% of funds under management, equivalent to £150 billion, could face incremental outflows between 2027 and 2031.
UBS nevertheless sees long-term value in the business, forecasting double-digit earnings growth over the next five years despite assuming progressively weaker net flows and potential disruption from artificial intelligence tools used in financial advice.
The shares trade at 10.5 times forward earnings, compared with approximately 13 times for Quilter, leaving UBS to argue that the valuation discount offers potential upside despite the near-term headwinds.