UK-based wealth manager Charles Stanley has seen its shares slide in morning trading, following interim results in which its chief executive warned of “headwinds” and hinted that full-year market expectations may not be met.
On the face of it, Charles Stanley's figures didn't look too ominous. Profit before tax was up 43.3 per cent in the six months ending in September, to £6.9m.
Funds under management and administration crept up 1.3 per cent from the 2017 financial year to £24.3bn, while core business revenue climbed 9.8 per cent year on year to £74m.
The interim dividend was hiked from 1.5p per share to 2.5p.
Why it's interesting
Although the first half looked decent for Charles Stanley, which also disposed of its final non-core activity with the sale of pension provider EBS Management, its share price sank almost five per cent in morning trading on gloomy predictions from chief executive Paul Abberley.
He said the group faced “headwinds in the form of major regulatory change which is driving additional IT and process change costs and, in recent months, from lower than expected commission income”.
He added that the group would need “either a higher level of trading activity or other revenue increases” in the second half to meet current market expectations.
Salvatore Caruso, an analyst at Canaccord Genuity, said that the lower commission income “was partially a function of clients moving to fee only charges where commissions are not earned”, and “arguably improves the quality of revenue”.
He reiterated a “buy” recommendation and a target price of 400p.
Stuart Duncan at Peel Hunt, however, downgraded Charles Stanley to a “hold” recommendation saying that there was “still much to be done to deliver the 15 per cent operating margin target”.
What Charles Stanley said
“Charles Stanley aims to become the UK's leading wealth manager by 2020. The first step toward this has now been delivered and the business has returned to profitability, achieving topline growth by focusing on core wealth management activities,” said Abberley.
“Our second step has been to put in place improved governance, better cost control and revised remuneration structures. We are now focused on the third but hardest step, that of invigorating our new business channels and more generally improving our productivity across both front and back office.”
Although Abberley warned that the wealth manager could miss expectations, he said that “we remain confident about the long-term prospects for Charles Stanley as the benefits from the detailed execution of the third leg of our strategy begin to bear fruit”.