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AJ Bell tech gets analyst backing to survive IPO

Bell-Andy-2017-CUTAs platforms continue to struggle with upgrading their systems, analysts are urging AJ Bell to keep its focus on technology ahead of its planned listing.

AJ Bell is set to launch an initial public offering of shares on the main market of the London Stock Exchange either later this year or early next.

The platform is not looking to raise new capital through the deal, and will offer an exclusive retail share sale to its current adviser users and customers, as well as an offering for institutional investors.

Invesco Perpetual, which currently has a 44 per cent stake in AJ Bell, and chief executive Andy Bell, who owns 28 per cent, “will both retain cornerstone shareholdings post-IPO”, AJ Bell has said.

In a report prepared by consultants Hardman & Co, the firm’s analysts identify technology as one of the key possible risks to the business when it floats.

It writes: “The technology running the platform is critical to the whole business. Any serious faults or attacks on its integrity could have very serious repercussions.”

However, it also identifies technology as a strength of the AJ Bell business in the run-up to float.

It is optimistic because it believes management understands the technology behind AJ Bell, since  the founders helped write the initial software, and that having already upgraded its technology in 2014, AJ Bell was not undergoing replatforming struggles like some of its competitors.

Platform pressure: Will stock market floats breed adviser conflicts?

An Altus report last week put part of the difference in “pure” platforms’ profitability compared to those that started life as part of larger providers down to the increased chance of having founders that were more comfortable with innovation.

Hardman writes: “One of the key tests for any administrative system is its ability to cope with peaks of activity. Some peaks are predictable – such as the tax year end burst of activity – and some less so – any sudden market move like the shock Brexit result. AJ Bell’s systems have proved they can cope with the extremes of activity without and significant increase in staff or any noticeable deterioration in performance.

“Ongoing investment will keep the platform up to date and add incremental improvements but no major, disruptive change is anticipated.”

AJ Bell is looking to position itself as the easiest platform for advisers to use, after the IPO. Hardman believes there are also opportunities to generate new assets as “there are still plenty of assets not yet corralled” with trillions not invested through platforms.

Hardman cites research that the Sipp market will grow at around 15 per cent a year until 2020, with £50bn of defined benefit transfers. Given 48 per cent of Sipps are not held on platform, this would present an additional opportunity for AJ Bell.

“Since pension freedoms the growth has been much more mainstream with savers taking the opportunity to take control of their money and the way they access their pension,” the report reads.

The report predicts that the recent launch of AJ Bell’s own funds could become a “substantial contributor” to profits. Hardman calculates that if it achieved levels of in-house funds similar to its competition this could generate more than £5m a year in future revenues.

The report reads: “In the year to end September 2017, [AJ Bell’s] investment management business had revenue of just £1.1m. Its objective is to reach industry levels of penetration with its investment products. Hargreaves Lansdown, in December 2017, had £9bn in its own funds or just over 10 per cent of the assets on its platform. If AJ Bell had 10 per cent of its AJ Bell Youinvest and AJ Bell Investcentre assets currently (around £32bn) and charged just 15 basis points that would amount to around £5m of annualised revenue. And that sum would grow with the assets.”

AJ Bell: IPO is not ‘jobs for the boys’

The report also points to data from Platforum that shows AJ Bell outgrew the general platform market, increasing revenue 35 per cent compared to total growth across the market of 22 per cent.

AJ Bell Investcentre remains third in Platforum’s ranking of advisers’ preferred primary platform to use behind Standard Life and Transact. It ranks alongside Aviva, Fundsnetwork and Standard Life at the top of additional research Hardman conducted over how likely advisers are to transfer to a particular platform.

Hardman recognises that particularly for smaller portfolios, the main AJ Bell advised platform can come in more expensive than its peers. A £20,000 Sipp would cost AJ Bell clients 92bps, compared to as low as 29bps on Cofunds. The Aegon-owned platform remains the cheapest above the £250,000 bracket, but AJ Bell improves its position to second cheapest.

Hardman says in terms of the proportion of fees coming from recurring revenue compared to transactional business, it sees “no reason for this to change”.

Around 10 per cent of AJ Bell Investcentre’s revenues currently come from transactional charges.

When it lists, AJ Bell will be the latest in a string of financial advice market business looking to target an IPO. Fellow platform Transact floated through parent Integrafin earlier this year. Support service provider Simplybiz also successfully listed, and Embark, which owns Sipp providers Rowanmoor, Hornubuckle and the Embark platform, is also eyeing a listing.

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