Shore Capital upgrades AJ Bell after 'amazing' first-half beat

(Sharecast News) - Shore Capital has upgraded its rating on AJ Bell from 'hold' to 'buy' after an "amazing beat" from the investment platform with its interim results two weeks ago.

Despite costs coming in higher than expected, underlying pre-tax profit was up 15% at £79m as a result of a better-than-predicted margin performance, coming in 12% ahead of the consensus forecast.

Revenues, up 19% at £183m, were 6% of the market estimate, driven by higher transaction levels and higher recurring ad valorem charging.

"That was an amazing beat. Yes, in part this is driven by transaction frequency and type, to an extent that may not be sustained, but the increased marketing spend is driving further great returns," Shore Capital said.

As a result, the broker said the results have driven "huge upgrades" as it hiked its target price for the shares to 700p, compared with Monday's market price of 606.9p, more or less unchanged from Friday's close.

"Though we believe we have taken on board the company's guidance re the many factors which might slow, and having digested the specific costs guidance, we end up with a 42% PBT margin this year, above guidance, and a 700p TP, which would on our numbers be 22.5x this year and 19x FY27F," Shore Capital said.

"That out year multiple is in line with where the company has recently traded, while evidence of its virtuous flywheel is all the more obvious."