Berenberg hikes target price on St James's Place

Analysts at Berenberg raised their target price on asset manager St James's Place from 875.0p to 1,005.0p on Wednesday in order to better reflect the recent recovery in financial markets and more resilient than expected trends in flows.

Berenberg said St James's Place was the "indirect beneficiary of market strength", highlighting that The Financial Services Compensation Scheme accounts for 12% of the group's cost base.

While the analysts continue to expect the cost of the FSCS to grow by a double-digit percentage in the near term, the recovery in financial markets was also said to likely ease cost inflation at the margin and for this reason, they also see potential for the company's cost line to benefit from the recent recovery in financial markets.

The German bank also said flows remained "reassuringly robust", with fears that the first quarter's volatile financial markets and coronavirus-related social lockdowns would weigh on SJP's flows in the second quarter appearing to be "unfounded".

Recent trading statements confirmed the group has continued to see solid demand for its services in April and May, with annualised net inflows of roughly 9% so far in the quarter, materially ahead of the 2% annualised inflows Berenberg had anticipated at the start of the same.

However, Berenberg noted that the recent strength in the group's shares left them trading close to its assessment of fair value, leading it to retain its 'hold' rating on the stock.

The analysts also cautioned of "modest" headwinds stemming from revised pension rules after the Financial Conduct Authority recently confirmed plans to disincentivise transfers out of defined benefit pension schemes.

"While SJP does not quantify the impact of such transfers, our previous analysis suggests these rules are likely to reduce the group’s total net flows by roughly 13% per annum," said Berenberg.

"Although unhelpful, we believe this impact is likely to be swamped by the influence of more profound economic, market and social (ie coronavirus-related) issues on the group's flows dynamics."