PrimeStone Capital has urged British wealth management company St. James’s Place to slash costs, exit its loss-making Asian business, and improve financial transparency, reckoning these steps can help the British financial services company double its stock price.
PrimeStone, a 1.2% shareholder in St. James’, argued in a Monday letter to the board that the company is poorly managed, saying its shares have “significantly” underperformed those of its peers over the past five years. The activist added that the company’s market capitalization as a percentage of client funds under management is at an all-time low after a constant decline since 2013.
PrimeStone attributed this underperformance to the company’s “bloated” organizational structure, “excessive” hiring and pay, and mounting losses in its Asia division.
To boost performance, St. James’s should tap a consulting firm to help it bring down its cost base to the 2014 level in a bid to restore its cost competitiveness, PrimeStone said.
The activist added St. James’s must set “ambitious” cost reduction objectives and an “appropriate” timeline for their implementation and then regularly report on achievements versus these objectives.
On financial transparency, PrimeStone argued St. James’s suffers from “overly complex and incomplete financial communication.” The activist called on the company to simplify its financial reporting by including widely used metrics such as revenue and Ebitda (earnings before interest, taxes, depreciation, and amortization) in its reports.
Regarding the company’s Asian business, PrimeStone noted this has accumulated losses ever since it was bought from The Henley Group back in 2014. The activist criticized St. James’s for having no plan to break even and said a shutdown of the division would be “highly value accretive.”
The London-based activist claimed these steps have the potential to take St. James’s market capitalization to 11 billion pounds over the next three years while a re-rating of the company could lead to an even higher 18 billion pound valuation.
St. James’s on Tuesday said that net inflows slowed in the third quarter amid a “challenging” environment. The company reported net inflows of 1.33 billion pounds in three months ended September 30, down from 2.11 billion pounds in the same period last year. Despite this, the wealth manager still reported record funds under management of 118.7 billion pounds ($154.70 billion) while chief executive Andrew Croft deemed the company’s quarterly performance “robust.”
Shares in St. James’s traded down 1% at 921 pence at 3 p.m. GMT on Tuesday, giving the financial services company a market capitalization of just under 5 billion pounds.
In April, short seller ShadowFall Capital & Research.said in a report that St. James’s would be forced to choose between using its balance sheet to fuel asset growth or funding its dividend payout. Days later, St James’s cut its dividend for 2019 by roughly a third.