Charles Stanley 💰

We often assume that during an economic downturn that financial services will suffer as a sweeping statement, but really the risk are at a sector level, looking at an industry level you start to see the ones who thrive.

Today I wanted to cover something a bit different. Charles Stanley (at the time of writing) is one of the few stocks which has three gold awards for Quality, Value, and Momentum.

However, Charles Stanley has not always been a picture of good health. They are currently in the progress of a turn around plan. Generally speaking, “turn around plan” is not a phase associated with companies at the top of their game.

Yet the plan appears to be paying off. Rather than a race to the bottom for large volumes of tight margin customers, Charles Stanley has been expanding it’s high margin services and making it feel a bit more exclusive, as well as giving their funds a bit of a shape up. For the most part this turn around plan and it’s early signs of success has been rewarded by investors.

Then COVID-19 hit the nation.

After shock sell off, which too a few swings at the whole sector, things are starting to look up. Why is that?

The portfolios which Charles Stanley manage have seen sell offs and moves into cash, their staff are in lockdown, and interest rates are down with loans up. Where are the upsides?

Clients maybe moving into cash, but they aren’t closing their accounts. Charles Stanley have increased their fees and moved to a higher margin focus. Even on cash these fees are being charged. While it’s harder to earn interest on cash, it can still be done. They are charging the same amount to customers based on their overall wealth on their platforms, but they now have more cash to play with when it comes to playing the money markets.

Additionally clients have their advisers keeping close contact with them and making sure they have peace of mind, keeping them sticky and on the platform. Where Charles Stanley makes money on trading (their direct offering) they are reaping the gains of market volatility attracting short term traders.

But does this translate into good ranks?

The quality has ranked extremely well. However, always take the quality scores of a financial company with a pinch of salt. Profitability and Capital Allocation tell the usual story, the Financial Strength can be inflated by regulatory requirement about how much cash they need to keep on hand. As long as the money is available the requirements are met, but that money still belongs to the firm and lives on the books (this is different from client cash and assets which don’t live on their books, don’t worry about that!)

In this case Charles Stanley is boosting an impressive capital allocation rank, coming in at #176 out of #5,535 stocks from around the world. As a dividend payer this is not surprising. In fact, the excellent growth and higher margins as been increasing the dividend payouts. One of the few firms holding strong to their dividends. With the amount of dividend cuts happening this will help attract some new investors to the fold.

Next we have the Value. Unlike the stocks I have recently reviewed Charles Stanley is, relatively speaking, very cheap to pickup. Cash flow and income compared against the share price mean there is a lot of hidden value to be uncovered. I wouldn’t go as far as to say this is a diamond in the rough, but the recent dip in price has made for an extremely attractive entry price. Buying into a company during a turn around plan is always a risky bet, and this is likely putting some extra downward pressure.

Lastly, what are the experts saying? The Momentum score is very promising, with strong predicted future profits, earnings, and generally positive future sentiment. That said the analytic recommendations are a 50/50 split, between buy and hold. Seems the unknowns with a turn around plan is a cause for caution for some.

Is now the time to invest in the investment space? Is this the start of success or the peak before the fall? An interesting company and the first time covering three gold key factors, let us know what you think!