The Investment Column: St James's not quite the place for your capital

Business is booming at the upmarket wealth manager St James's Place Capital in the run-up to the biggest shake-up of Britain's pension system in almost 20 years.

Pensions-related new business jumped 27 per cent to £71.4m last year as well-heeled clients positioned themselves for "A-Day" on 6 April. On that day, changes aimed at simplifying the pensions tax regime are expected to allow savers to squirrel away more for retirement and still qualify for tax breaks.

There was also hungry demand for investment products from savers looking to tap into surging global stock markets. New business here was up 31 per cent to £125.2m. Overall, new business grew by a quarter in 2005 as demand for pensions and investments offset dwindling sales of mortgage-related protection policies in a subdued housing market.

St James's, which is 60 per cent owned by HBOS, reassured investors that sales had been stronger last year than the City had expected. Analysts had been looking for sales to grow by one-fifth over the year.

Mark Lund, the chief executive, insisted annual sales would still grow by 15 to 20 per cent in future despite slow progress in recruiting new salesmen.

Unlike rivals that have opted to sell through independent financial advisers, St James's, which is based in Cirencester, Gloucestershire, sells through a direct sales force of 1,100 self-employed "partners". Expansion of that web is seen as key to growing the business, but only 17 more salesmen were signed up in 2005. That 1.5 per cent increase is way below the 5 to 10 per cent growth the firm is looking for each year.

Pre-tax profits are expected to touch £100m in 2005, against £88.2m the previous year. They were given a fillip yesterday by the release of £13.5m of provisions relating to a potential European Court of Justice ruling on VAT exemption and potential warranty claims. The upbeat news spurred the shares 11p higher to 293.5p, their highest since spring 2002. That looks fully valued, trading at 1.8 times embedded value and yielding little more than 1 per cent.

Despite the healthy sales performance, strong positioning before the pension changes and reassurances over growth prospects, investors may do better elsewhere.

Austin Reed won't suit you, sir, just yet

Austin Reed, the upmarket fashion chain, joined the majority of high street retailers in reporting strong Christmas trading figures yesterday, boasting an increase in like-for-like sales of almost 3 per cent over the 15 weeks to 14 January.

The figures came as a relief to investors, who have endured a tough ride since the company revealed in the autumn a collapse in its summer sale, sending the company's shares down from about 120p to 89p, where they sat before yesterday's trading statement.

The main worry for the Austin Reed remains the decline of its Country Casuals brand, which has seen an 18 per cent decrease in sales during the past three months.

But there was some good news here, as the group said margins in this division were picking up, and promised that strengthened design and buying teams would begin to be reflected in sales later this year.

While the company is still on course to make a loss for the full year, that loss looks to be more in the region of £500,000 rather than the £2m some had feared. Furthermore, hopes of a profit in 2006-07 are looking much more realistic.

But while the seeds of a recovery may have been sown, the valuation of the group still looks demanding. If the company makes the £1m in pre-tax profits that some predict for next year, it will be trading at a valuation of almost 30 times its predicted earnings - much more than most of its competitors.

Although the collapse in Austin Reed's share price in recent months makes it a potential takeover target, it is hard to recommend the stock to new investors at its current price.

Existing shareholders should certainly hold tight, but newcomers should wait for a better time to buy.