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Charles Stanley pricing review hits commission income

Charles Stanley pricing review hits commission income

Although the majority of its overhaul is now complete, Charles Stanley is tweaking its client fees, following a firm-wide pricing review. 

'There is still much work to do,' said Paul Abberley, following the release of Charles Stanley's interim results this morning.

The company had earlier warned that despite a 53% increase in first half profit, without an unforeseen increase in revenue it was likely to miss full-year forecasts, following lower trading earning and higher regulatory costs.

At 10.00am the shares were down 6.85% to 357.68p.

Stuart Duncan of Peel Hunt downgraded the stock to hold this morning, while maintaining a target price of 390p.

He said: We now expect PBT/EPS of £11.6 million/17.7p from £12.5 million/19.1p previously.

'We would note that we consider there is increased risk with regards to this forecast, given the importance of Q4 for commission income.'

Speaking following the announcement this morning, Abberley said: 'Something that we implemented early during the strategic program is to look at the tariffs we charge for various services across the board.

'We wanted to simplify the range of tariffs and ideally make them more transparent, so that's what that is about.'

'Simultaneously with the context of us meeting with clients to review the services and products that are offered to them, reviewing the tariffs we believe will leave clients with a better quality of service and enhance our profitability at the same time.'

He did not offer further detail on how the changes had been applied.

In the investment management division revenue grew by 8% on the prior year, which, mainly driven by higher funds under management as well as the new fee structures as trail commission has been finally.

This however resulted in commission income being reduced by £1.1 million.

Abberley said that he was not concerned about the fall but added: 'What we’re seeing there is volatility in the shape of those of commissions.

'It might be something that naturally rights itself. Obviously we if that doesn't improve we will need to plug the gap and find revenues and efficiencies elsewhere.'

During the early stages of Abberley's transformation strategy, Charles Stanley already made a number of changes to its fees. In early 2016, the company increased its minimum charges in its investment management service to £850. 

Later that year, Charles Stanley Direct also announced an overhaul of its charges with a reduction of its platform fees. 

Despite the warning, analysts at Cantor Fitzgerald raised their target price for the business from 360p to 400p, saying that Charles Stanley's profitability has 'substantial upside from its current low level (6% margin versus 30% for sector leader) relative to its peers'.

It added: 'Assuming continued successful delivery by management in the next couple of years which appears reasonable in view of the progress already made, we consider the shares to be up with events at the current level, equivalent to circa 14 times full year 2019 earnings which imply a 50% or so rise in EPS over 2018. We raise our target price to 400p.'


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