XPS Pensions (XPS) 363p

Market cap: £756 million

We have written about XPS Pensions (XPS) several times in the past, most notably in June 2024 when, after posting double-digit revenue growth in 2023, the firm ‘did the double’ by reporting a second year of double-digit growth.

Fast-forward to June 2025 and chief executive Paul Cuff can now claim to have ‘done the treble’ by adding yet another year of double-digit top-line growth.

In total, revenue has grown 66% and EPS (earnings per share) have grown 100% over the last three years, most of which has been organic, with the doubling of the bottom line signalling a clear improvement in margins.

So how does what on the face of it seems quite a dull business, providing pension funds, and increasingly insurance companies, with independent advice and solutions, rack up this kind of growth?

MEETING A GROWING NEED

First, the group provides a wide range of services to more than 1,300 defined benefit and defined contribution pensions schemes, including administration, actuarial advice, first-time outsourcing, accounting, payroll services, fraud prevention, data auditing, secretarial services and more.

This is a total addressable market in the UK alone of around £2.5 billion, or 10 times what the company turned over last year, so there is considerable scope to win new mandates both in the public and private sectors.

Second, regulation is becoming ever more complex, meaning pensions funds need ever greater levels of support and advice.

Just this month, the government introduced its Pension Schemes Bill to ‘tackle schemes delivering poor returns for savers, combine smaller pension pots and create bigger and better pension funds’.

For the pensions industry, this could mean a huge amount of upheaval and new reporting requirements which many schemes may need help with, opening the door to XPS consultants.

At the same time, strong financial markets have pushed many pensions schemes into surplus for the first time in many years, which together with regulatory change ‘creates valuable options for our clients, who need good strategic advice about the best path for them to take,’ says Cuff.

Third, the firm has been helping with remedial work on civil service pensions after a 2023 court case found rules introduced in 2015 discriminated against scheme members on the basis of age.

The so-called ‘McCloud Remedy’, based on the court case, removes that age discrimination, but has involved a huge amount of administrative work, and XPS is the only firm to have met its deadline to deliver member statements, meaning it is well-placed to win work on projects which haven’t been completed, such as the NHS pension scheme.

DECIDING ITS OWN FUTURE

If it sounds as though XPS has been lucky by being in the right place at the right time, we would argue the firm has created its own luck by being proactive, growing parts of the business organically and buying complementary businesses to increase the depth and breadth of its expertise.

For the year to March 2025, actuarial and consulting revenue rose 14% driven by continued growth in risk transfer and GMP (guaranteed minimum pension) projects, including winning competitive mandates on multi-billion-pound schemes.

Meanwhile, administration revenue grew by 30% driven by GMP, McCloud projects and new client wins, most impressively the John Lewis Partnership pension scheme, which was onboarded ahead of schedule.

The firm’s brand has been enhanced by multiple industry awards including Actuarial/Pensions Consultancy of the Year, and in a survey 97% of clients said they enjoyed working with XPS.

Internally, management attention has been on the implementation of its proprietary administration platform Aurora, which has drastically reduced costs and helped drive its success in winning new business, as well as on the ‘go-live’ of the SEI Master Trust administration.

Externally, the firm has been ‘laying the foundations for future growth,’ as Cuff puts it, by expanding into the closely related insurance consulting market, which is worth an estimated £1.5 billion per year in revenue.

‘GROWING SIDEWAYS’

Bulk annuity DB (defined benefit) deals involve pension schemes selling their liabilities to insurers, who promise to pay the members a guaranteed amount, so the insurers need support not just to be able to pitch for deals but to ensure they have the resources in place to pay out for the next several decades.

To this end, XPS has been building scale, establishing a new consulting team with multiple senior hires, as well as building on its strong existing relationships with insurers and acquiring Polaris, a firm of specialist actuaries and consultants.

Despite the upside potential in insurance, however, the firm is playing down expectations for growth this year on the basis of the strong comparatives in its pensions business and lower McCloud revenue.

We suspect that caution is overdone, as does Shore Capital’s Vivek Raja, who sums up his view as follows: ‘We like XPS for its revenue visibility underpinning earnings quality, non-cyclical demand, high cash conversion and low capital intensity, all of which frame it as one of the more defensive investment cases across our financial services coverage.’

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