PrimeStone says St James's Place should set cost-cutting objectives
St James’s Place said on Monday that it was "proactively" engaged with shareholders with regards to group strategy and structure after activist investor PrimeStone Capital said in an open letter that it should cut costs.
In a letter to St James’s Place’s board of directors, PrimeStone wrote: "SJP is fundamentally a strong business that has been delivering great value for clients, partners, employees and even the regulator for many years. The SJP business model has yielded best-in-class growth and retention of advisers, clients and assets. Unfortunately, however, it has failed to deliver meaningful value for shareholders over the last five years. This is especially disappointing given that client assets have doubled over this time.
"PrimeStone has conducted significant research and analysis of SJP over the past year. This in-depth analysis has led us to believe that the company’s current share price does not reflect the full value of the strength of its business model, its leadership position or its long-term growth potential. Moreover, we have identified that this underperformance is mostly due to the suboptimal management of SJP’s cost base."
PrimeStone owns a 1.2% stake in the company.
SJP said in a very brief statement that it looks forward to commencing a dialogue with PrimeStone about the views outlined in its letter.
PrimeStone attributed the lack of shareholder value creation in the last five years to poor cost management. It pointed to "a bloated organisational structure", excessive hiring and pay and mounting losses in Asia with little prospect of a recovery.
It noted that SJP’s share price is down 7% since the end of 2015. The total shareholder return has only been 2% annualised and below that of the FTSE 100, it said.
"SJP has delivered tremendous value for clients, advisers, employees and management … but not so much for shareholders over the last five years.
"It is time for the company to address its high cost base and change its culture in order to deliver its full value-creation potential to long-neglected owners. Far from coming at the expense of other stakeholders, we believe such a change will provide SJP’s clients and advisers with a leaner, more agile and more reactive SJP.".
It called on SJP to restore its competitiveness and bring its cost base to the same level as its best-in-class peers, and closer to the level it delivered in 2014.
It also urged the board to task management with conducting an in-depth cost review and a zero-based budgeting exercise.
SJP should set ambitious cost reduction objectives and an appropriate timeline for their implementation and communicate them to shareholders, PrimeStone said, as well as improve financial communication to shareholders by more clearly reporting on revenues, costs, margins and important key performance indicators.