AJ Bell is a British company with a strong financial foundation that is undervalued Don't ignore it
It's been ten years since I started following the financial technology (fintech) industry. Three major changes seem to be taking place, in my opinion. The first, which needs little explanation, is the rise of cryptocurrencies and all the digital assets that go along with them.
The second is the rise of "neobanks," or banks that operate exclusively online, like Monzo and Starling. Next is the rise of online brokers, also referred to as online investment platforms.
This revolution's initial phase started a long time ago. I'm old enough to recall how, following financial deregulation, fund supermarkets like Hargreaves Lansdown grew in popularity in the 1980s. Every few weeks, I would get a new newsletter in my inbox and call to purchase stocks or money. The majority of share (and bond) trading now takes place online.
Investors have realized that share trading and investment have been arguably the most lucrative aspects of the internet and e-commerce boom. The first was the US initial public offering (IPO) of companies like Robinhood, which saw a sharp increase in clients from the middle of 2020 to the middle of 2021. From 13 million to 22.5 million funded accounts (those with money deposited in them, not just opened) were created. Since then, the population has grown at a slower rate, eventually surpassing 25 million by the end of 2024.
Going worldwide.
More recently, we have seen the quick ascent of a company named eToro. A few weeks ago, this rapidly expanding Israeli business went public on the US stock exchange. It has proven to be very well-liked by US investors and users alike. They use a forward price/earnings (p/e) ratio of 28 to value the company at well over £5 billion.
In the most recent fiscal year, the company's sales reached £12 billion, a 276 percent increase from the previous year. The company oversees 16.5 million funded accounts globally and £16 billion in assets. Active online share trading has expanded into a global market. Importantly, in 2024, cryptocurrency trading is expected to generate 37% to 43% of total revenue. While eToro may be the bold new kid on the global online trading scene, Interactive Brokers, or IBK (Nasdaq: IBKR), is the pinnacle of a global trading fintech giant. Nobody, at least not in the UK, has heard of this fintech giant.
The online brokerage firm's unwavering focus on its global platform, wide range of products, and competitive pricing has drawn a wave of new customers, increasing its total number of accounts from 690,000 at the end of 2019 to an astounding 3.79 million by the end of May 2025. The group has a net worth of over £85 billion.
The price at which IBK's shares are traded is comparable to that of eToros. It has also been rapidly growing all over the world. Along with its core advanced trading products, its UK operation now offers competitive offerings in ISAs and Sipps. I've started using IBK and can vouch for the platform's extreme sophistication, despite the fact that it's not particularly user-friendly.
It is noteworthy that IBK has been steadily entering the UK market because it believes there is a chance. Many other businesses concur as well. Just a few months ago, the IG Group, which based its lucrative business on spread betting, acquired the online trading platform Freetrade in order to increase the scope of its share-dealing services. With the rapid growth of the UK share-dealing market, competition is intensifying. The market was worth roughly 586.9 million in 2015. This amount skyrocketed to £212 billion by 2024, and £228 billion was projected for 2025. Within less than ten years, the online brokerage market's value has more than tripled.
I now arrive at AJ Bell (LSE: AJB). With 90 billion in assets under administration, Hargreaves Lansdown, a UK fintech company based in Salford, has emerged as the city's preferred investment e-commerce platform since being purchased by private equity. That amount is far higher than eToro's in the United States. Although AJ Bell's market capitalization is slightly over £2.06 billion, which represents just over 50% of the value of US companies, eToros's total market capitalization is just under £5 billion. However, AJ Bell has significantly more assets under administration.
Analysts predict a 20 percent increase in revenue for AJ Bell over the next year, and the company is currently trading at 20 times earnings. Although the growth rate slows to single digits over the next two years, earnings per share (EPS) are predicted to increase by 16 percent in the current fiscal year. The slower rate of growth in the number of users drawn to the platform over the previous two years is partially to blame for this slowdown. However, the company's net income margin has continuously remained above 25 percent, and its return on equity has stayed consistently above 35 to 45 percent.
Since I believe we are seeing yet another classic case of British exceptionalism of the negative kind, I have gone into some detail about AJ Bell and its key financials. The main narrative surrounding UK stocks as a whole is that we undervalue our most prosperous companies, and eventually the outside worldwhether it be private equity, Asian, or USnotices and jumps in to purchase the assets at a discount.
Some investors at AJ Bell have expressed concern that customer growth is slowing, but it's likely due in part to the risk-averse investor/saver culture in the UK, which leans more toward cash ISAs than stock and share ISAs.
That is gradually shifting, though, as the government becomes more committed to encouraging savers to invest. This is in line with larger patterns in the US and other European nations where incentivizing investment over saving is more common. Additionally, AJ Bell is a British company that is significantly undervalued and has a strong financial foundation, much like IBK in the US, which is also a very solid and relatively undervalued stock.
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