Funds Management Companies

[mamos]

I think this industry will achieve significant growth this financial year. The main reason for this are the significant inflows that were received before June 30.

Some extracts from a recent article:

MACQUARIE Bank yesterday reported a massive $18 billion inflow into its superannuation fund business in the final three months of the financial year as investors rushed to put as much as $1 million into their accounts before the June 30 deadline.

Macquarie Bank deputy managing director Richard Sheppard said the inflow was some 115 per cent higher - or about $9.5billion higher than the same period the previous year. -

Mr Sheppard said he expected Macquarie's experience was indicative of the broader market.
"Clearly the industry experienced very very strong flows in the June quarter into superannuation products," he said.
"We would expect strong growth figures would also be reported by other market participants.'

The FUA for Funds Mgmt companies will have greatly increased by 30 June, however, the returns from the increased funds will start to be realised this financial year.

The other reasons for my attraction towards this industry are:
- Scalability. Largely a fixed cost base
- Repeating revenue flows every year
- As asset values grow so does the management fee (% of FUA)
- Continued inflows from Super

A risk I see is it may be difficult to repeat the strong performances achieved over the recent years.

I am looking at businesses that have the greatest exposure to funds management. i.e. It is their main activity. What PE do these companies trade on and what do we consider is cheap?

Cheers,

M

[OneUp]

Fiducian

Clime

Hunter Hall

...all come to mind.

[SEC]

quote:Originally posted by mamos

I am looking at businesses that have the greatest exposure to funds management. i.e. It is their main activity. What PE do these companies trade on and what do we consider is cheap?

Cheers,

M


http://www.sharetrader.co.nz/topic.asp?TOPIC_ID=24452

SEC

[mark100]

Always been a fan of pure funds management companies given their ability to grow EPS exponentially when the market is good, high payout ratio’s and in most cases debt free.

However they always get killed in a bear market as their FUM growth slows and in some cases declines.

I reckon a bear market is the best time to go shopping for fund managers because that is when they are most out of favour and their PE’s have been compressed. When the market turns their FUM growth increases and their PE’s expand. Also being predominantly debt free you don’t have to worry as much about them falling over in a bear market (ie CNP, MFS)

Now is probably way too early to start buying but its worth keeping an eye on some for potential buying when the market bottoms.

A few I follow are:

BTT – recently spun off out of WBC at $4.80. Now down to $3. FY08 cash EPS is forecasts at 28.6cps but that is before the market declines. This figure may have to be trimmed by around 10%. However in their last FUM notice, a higher portion of funds were in the higher margin category than forecast, potentially offsetting the lower than forecast FUM.

Payout policy is also high at 80-90% cash earnings and is debt free.

BTT is a run of the mill fund manager with low fees. So in the event of weak performance they may not suffer as badly as the likes of PTM because of the low fee structure. As such BTT market cap is around 1.15% of FUM.

Possibly on a FY08 PE of 11-12. Looks not too bad.

PTM – very different beast to BTT. PTM charges very high fees because they regard themselves as more specialised and with a superior track record. As such PTM is currently trading at a Market Cap / FUM ratio of around 12.5%.

To date PTM has been able to charge very high fees because of their superior performance. However performance has been poor lately and their ability to maintain these high fees could possibly be called into question. If Kerr Neilson gets the outperformance going PTM could be a winner again.

Possibly on a FY08 PE of 14-15. Too expensive for me given FUM is going backwards.

FPS – A mix of financial planner and fund manager. Appears to be very conservatively run and has not spent its cash on overpriced acquisitions in the boom. Instead this cash has been used to fund share buybacks along with a 70% payout ratio. FPS is debt free.

The recent interim profit was up 40% on the previous corresponding period although it was only up around 5% previous consecutive period. Their outlook was for ‘steady growth’ which is what they always seem to say.

Possibly on a FY08 PE of 14. Not super cheap but growth has been impressive. I note the FPS share price has been holding up better than most other companies in the sector. I hold FPS.

AEF – There is a separate thread I started on AEF some time ago. AEF has done well and is holding up quite well. However it is currently way too expensive for me and is possibly on a FY08 PE in the order of 20.

I am also a fan of HHL but view it as being a bit highly priced.

Any other cheapies out there?

[macduffy]

PTM is my pick. I agree with Mark's comments. Kerr Neilson is acknowledged as one of the best in the business. Doesn't follow the herd and PTM FUM have dropped recently as a result. If this bear market develops his contrarian picks may turn out to be winners.
Meanwhile, SP is weak and from a TA point of view PTM is not a buy.
It's on my watchlist for a turnup in the trend.

:)

[Stranger_Danger]

I like AEF but as Mark says, it is no longer a cheap share.

Whilst I'm not a fan of ethical investing personally, I see it as a growth area. Perception is reality and - done properly - I believe such companies are in the position to profit as we unwind from a period of excess and over-leverage. Also, their lack of exposure to the mining boom offers some negative corelation should this boom unwind.

[COLIN]

Any thoughts on AUW, the split-off from Tower? I know they are more than just a funds management outfit, i.e. they include Trustee services, financial planning, etc., but they are now in the ASX200 and had over $6b in FUM on the last figures I have seen. P/E around 18.

[macduffy]

I'm one of many holding these from the Tower spin off and have considered quitting from time to time.
However, various brokers/commentators seem quite keen on them, especially since they merged with the Bridges outfit. Company also confident of good performance in current year.
So I continue to hold but doubt if I'll be adding to the holding.

[Stranger_Danger]

I got out of AUW at $2.50.

The two catalysts were

(a) GPG getting out at a similar price.

(b) Trying to make sense of their financial statements.

Regarding (b), I couldn't and (a) made the decision for me.

AEF is my only funds manager holding.

[The Big Ease]

anybody rate PPT (perpetual)?

[mark100]

PPT have generally been highly regarded however they have got themselves into a bit of a pickle with a cash fund that guarantees a rate of return to investors. Due to the credit crunch this fund has not met its required rates of return and PPT is having to top it up in order for investors to get their set return.

While this is a temporary problem it could persist for another year or so which means PPT could remain out of favour for a while yet. That said, it is looking historically cheap

Don't now a lot about AUW. All the brokers like it and it seems to be trading on a FY08 PE of around 14. Guiness Peat do seem to have timed their exit to perfection however

[thereslifeafter87]

FPS seems ok, but one thing I noticed when I looked at it was the constant share buybacks. Why buy back a stock that is trading well above book value?

The answer: to make up for the issue of options to executives. I feel this is a poor use of shareholders capital.

[mark100]

TLA87, most of the options are issued to staff and advisers with the exercise price inline with, or at a premium to, the current share price. This is obviously to retain these staff and advisers. And it is the advisers who get the clients to invest in Fiducian funds.

I wouldn't say it is a poor use of shareholders capital because the options still have to be exercised before they become shares and that money flows into FPS ie the shares are not free. The reason there are some options on issue with low exercise prices is due to the run up in FPS share price over the past few years. Also over the past couple of years I note FPS has still bought back more share than what has been issued due to option conversions

[soulman]

Mark, PPT was a bargain at about $53.00, in hindsight anyway. After paying $1.89 in dividends, they are sitting high ATM. Yields at nearly 7% and respectable PE.

The US market went up on bad news last night. Our market are rising again today. Did we forget there will be an interest rate rise next week.

[thereslifeafter87]

From memory FPS earns a significant portion of its revenue from charging fees on fund inflows, as well as ongoing management fees. If inflows drop, then profits drop. This is enough to make me want to steer clear.

Please correct me if I'm wrong though.

[mark100]

That is correct, but that is how all funds management companies work.

As I said in my first post on this thread it is in times of doom and gloom that funds managers are often priced most attractively. And the ones that can still post earnings growth in the times of doom and gloom are the gems.

I'm not trying to convince you to buy FPS. I just want to know of any cheap funds managers that I may have overlooked.

[thereslifeafter87]

FPS isn't really a fund manager though. It's more a marketing/distribution company. People give it money, which it takes a cut from, and then FPS gives that money to others to manage.

I had a quick look at PTM - the fund outflows don't look good, especially in their funds that earn performance fees.

Still, if you look at the margins, what a fantastic business to be in! However, not so fantastic if you paid $8 a share.

[mark100]

True they aren't a pure fund manager but they still collect an ongoing fee.

They have around $3.7b in funds under management, advice and administration. Based on them posting revenue of around $30m for the FY that means they are collecting around 80bps average on this money which sounds about right. If they were only collecting a fee on the inflow they would not get anywhere near $30m revenue. I also note they are forecasting steady growth which to me indicates they aren't reliant soley on inflows for revenue.

On PTM, true fantastic margins and they will need to improve fund performance if they want to maintain that size fee. The funds outperformed in Jan (although still lost money) so will be interesting to see if the outperformance can continue in this tricky market.

[mark100]

Funds management companies continue to get 'cheaper'. Many now on forward PE of 10 and below - but how well can we predict the future E?

I don't hold any at present but I'm keeping a close eye on the sector. When the bear eventually goes into hiding earnings these stocks will get a double whammy of increasing earnings and a PE that re-rates from 10 to 15 (the oppposite of the double whammy they got on the way down).

A few I follow:
HFA
FPS
PFG
PTM (if FUM stabilises and the share price gets closer to $2)
HHL
AEF (PE still to high)

If you like the large caps there is AMP, AXA and PPT

[Dimebag]

Hi Mark100,

Agree with your prognosis that a bear market is the time to go shopping for fund managers. The entire sector has been absolutely hammered and these stocks are the cheapest relative to FUM that they've been in a long time.

On the topic of outfits you may have overlooked, Treasury Group (TRG) is also worth checking out if that's not already on the radar.

These guys are basically an incubator of boutique equity managers, and have stakes in a number of managers. About 75% of their FUM are in just two managers at the moment - Investors Mutual and Orion, but they are adding new managers to the list, and the FUM growth of some of their newest funds has been impressive.

IM has been performing poorly of late. Its performance numbers have been horrible, and by my calculation, thay have suffered $600m in redemptions so far this calendar year (most in 2Q), and they are now down to $4.2bn under management. IM are a pretty big profit contributor for TRG, and this likely accounts for TRG's recent share price weakness (even worse than the sector overall). However, the other funds continue to do relatively well, and what I like with TRG is the option it gives you on future boutiques it sets up. And IM's performance, which has suffered from having no exposure to resources, could well improve if commodity prices take a tumble.

The company has about $1.50 a share in cash, so at $7.30 it looks very cheap. They made 44cps in the first half, so even fully marking to market recent declines in its FUM (about 20-25%), it is comfortably below a 10x PER after deducting cash.

I also like HHL below $10. It's recent performance has been pretty good and HHL is better leveraged to growth in emerging economies. By my calculations HHL has maintained inflows up until June, where they suffered a small outflow.

The main issue for all these companies is whether we have a protracted and painful bear market. We may have already seen the major hit to FUM from collapsing markets, but if markets continue to drift for a few years, a second-round hit from mass redemptions is possible. It is possible the likes of IM blow up under this scenario and lose most of their money. This risk is mitigated by legislated super contributions, but money can still easily move to the sidelines when people are nervous.

Impossible to pick the bottom, but for my money I believe the risks are more than reflected in prices and I've been buying in recently.

Cheers,
Dimebag (holds TRG and HHL)

[thereslifeafter87]

True they aren't a pure fund manager but they still collect an ongoing fee.

They have around $3.7b in funds under management, advice and administration. Based on them posting revenue of around $30m for the FY that means they are collecting around 80bps average on this money which sounds about right. If they were only collecting a fee on the inflow they would not get anywhere near $30m revenue. I also note they are forecasting steady growth which to me indicates they aren't reliant soley on inflows for revenue.

On PTM, true fantastic margins and they will need to improve fund performance if they want to maintain that size fee. The funds outperformed in Jan (although still lost money) so will be interesting to see if the outperformance can continue in this tricky market.


Usually fund managers don't take a fee on new inflows, whereas fund advisory firms like FPS may do.

Hence, if inflows fall (ie: people hold back from investing) FPS could be disproportionately affected. Say half of it's 80bps total return is generated due to new fund inflows (a wild guess), if fund inflows stop, it loses half its revenue.

80bps seems extremely high for someone who just passes the money on to someone else to manage. Fund managers only charge slightly more than that - maybe 1-1.5bps?

[mark100]

Hi Dimebag,

I do follow TRG a bit but was quite concerned by the level of outflows they have had this half. I don't want to invest in a fund manager that has net outflows because you never know how far earnings may fall. So until it reverses this trend I will only watch.

I like the look of HFA. It is a 'fund of funds' hedge fund manager that recently merged with its US partner, Lighthouse. This merger now keeps all its fees in house rather than paying some away to Lighthouse. Some may be put of by the hedge fund tag but their performance has been very respectable (much better than PTM funds which are employ some hedging techniques)

HFA has had around $500m of inflow the past year, with positive inflows in every 4 quarters. Fund performance has also been ok with fund losses in the range of -5% to 0% over the past year which is very respectable.

HFA got killed when MFS went belly up because the MFS Alternative Asset fund was holding a large amount of HFA shares and it got margin called. You will see on the chart that HFA got knocked down to 70c that day. It has never really recovered.

HFA is trading on around 11x 08 earnings. For FY09 there should be good earnings growth because FUM have grown and the merger with Lighthouse was significantly EPS accretive. Cash earnings will be much higher than accounting earnings due to the US requirement to ammortise the goodwill acquired from Lighthouse. Based on consensus, HFA is trading on a sub 8 FY09 PE and yield around 10%.

The main negative is they took on some debt to acquire Lighthouse. Not something I'm a big fan of for a funds management business. On the plus side the debt is US denominated (providing a natural hedge against the US earnings) and the interest rate is only around 4.5%. Interest cover is very healthy and debt/equity ratios are still conservative.

I don't hold at the moment. I did trade them a bit in the run up during Apr/May but for the moment I'm just watching it slide away.

[Huang Chung]

Not a fund management company per se, but an LIC......picked up a few Amcil (AMH) shares today.

Trading around asset backing, and well off its highs, this LIC has an interesting blend of blue chips and small caps in a fairly concentrated portfolio. No outrageous management fees either.

Top 5 stocks at the end of June were (in order):

BHP
Queensland Gas
Telstra
Bradken
NAB

Some other stocks in their top 20 that you would not normally see include Oakton (IT Services), Tox Free Solutions (Waste) and Mitchell Communications (Media).

Dividend of 6 cps coming up, which isn't bad when the share price is in the low 60s.

Not expecting big things, but a nice safe harbour to park some funds in these turbulent times.

[Dimebag]

Hi Mark,

Thanks for your thoughts.

I'm not sure that TRG has had huge outflows this half. They had net inflows in 3Q08 and appear to have suffered outflows in 4Q08. It's a bit unclear how these two items balanced out, but for FY08 overall they experienced inflows.

For the six months to the end of June-08 their total FUM was down 18%, which is pretty consistent with the overall market. The data the company has published is a bit patchy, but my understanding was that IM has suffered reasonable outflows in 4Q08, but their other fund managers don't appear to lost much money at all.

Have I missed something here?

PS yes HFA is also one I follow and own. The other negative about HFA is that it is a "fund of funds" manager. It could be argued that the fee-structures these fund-of-funds entail are outrageously high and ultimately unsustainable. On the other hand, the stock is very cheap, particularly when accounting for its entitlement to performance fees which could well resume in FY09, and as you point out, performance has been very good lately and inflows maintained.

Cheers,
Dimebag

[mark100]

Dimebag, a recent report I read on TRG has their inflows for the past 4 quarters as 0.3, 0.3, 0.4, -0.8. So the final quarter was poor. So they will be hoping thats not a continuing trend.

On HFA yes the fees are huge. But at least the performance figures quoted are net of fees so they have been able to preserve the value of investors money while still paying themselves well. Unlike PTM which also charges high fees and has had only minor outperformance (and still very negative absolute performance)

[mark100]

Took a modest position in TRG on the pullback under $5.50. Their latest FUM update was positive so it will be interesting to see how the half year earnings pan out.

Its hard to find value in this sector right now unless you think the market is going to charge ahead to 5500

[mark100]

Not a bad result from FPS. I took a small position late Friday and this morning. NPAT rose 25% to $4.1m of which $2.25m was in the second half. Cost growth was contained while revenue grew 7%. Market Cap is around $43m and they have $9.5m in the bank with no debt

[mark100]

Big result from KAM today and very juicy dividend to go with it. I hold at the moment

[mark100]

Not a bad time to get this thread going again given the bullish nature of markets at present. As mentioned much earlier when the market runs higher fund managers / financial planners generally post earnings growth ahead of the market growth due to expansion of both margins and PE ratios.

The time to be buying was obviously 6 months ago as a lot of the fund managers are already pricing in a lot of earnings growth with FY13 PEs around 20 or higher.

An old favourite of mine, FPS has always been a good play on the markets. It served me well in 2006/07 and then on 2009/10 but you have to be ready to sell when the bear resumes. FPS incurred a few one off costs (to gain future cost benefits) in FY12 which made the result look particularly bad. But the benefits were already evident in the FY13 interim result with EPS rising 50% on basically flat revenue.

In there interim report they say:
“Once the share market turns upwards, the profits of Fiducian should also follow. The company embarked on a series of cost cutting and cost recovery measures as foreshadowed in our Annual Report to shareholders. These have been completed and
have supported the company's profit growth which has also benefited from an improvement in share markets generally.”

In my view the next half should see good growth on the first half simply because markets are higher. Even if you simply annualise the interim result FPS is trading on a PE of 10 and FF yield of 6.4%. Market Cap is $34m and they have $7.5m cash. Those metrics compare well with any of the other fund managers/financial planners on my list. Obviously I hold, having purchased from 80c up to $1.

PFG is another financial planner that is potentially very cheap if they can get their act together. The interim result had one-offs of around $750k which they did not elaborate on. Excluding that they could be trading at a bit over 5x normalised NPAT but you would need to see the FY result to see how they are really tracking.

TRG still looks ok value. Lizard’s favourite, MFG just keeps on stacking up the FUM. If you value it at say 10% of FUM it is still not overpriced. I have traded its recent swings but not taken a long term position.

The EQT/TRU potential merger looks interesting given the potential synergies with the potential for a higher bid.

I recently bought a handful of AEF at $20. It looks expensive but is very leveraged to rising FUM and IFL holds 19%.

BLA and AFV both potentially very cheap but have no decent track record so are only watchlist material at this stage.

Any other suggestions?

[mark100]

I bought a few EZL when it broke through a dollar early Jan. It was one of my picks in the sharetrader comp. I liked the NTA of around 90c backed by its holdings in WIC and OZG. The brokerage firm doesn't need to make a lot of profit to justisfy a higher share price.

Not sure how the mining downturn will affect them. You're right a lot of cash will need to be raised by juniors to stay afloat. If the overall market is strong they just might be able to do that.

Other listed brokers are BFG and WIG. BFG has had a great rise in antipication of higher profits. WIG has forecast a loss for FY13 so can't get excited about them for the moment although there should be a lot of embedded value in their funds management arm. Having worked for WIG briefly I can say they had a massive cost base driven by bull market egos. Not sure if that has all been ripped out yet.

[Stranger_Danger]

I have a few WIG, and whilst it has been a double so far, they have a lot of work to do.

Still a much too bloated and expensive structure. Pinnacle is where the value is.

[steve fleming]

PFG is another financial planner that is potentially very cheap if they can get their act together. The interim result had one-offs of around $750k which they did not elaborate on. Excluding that they could be trading at a bit over 5x normalised NPAT but you would need to see the FY result to see how they are really tracking.



http://www.morningstar.com.au/funds/article/micro-caps/5992

Recently, Microequities held a one-day event that included presentations from its "rising stars" - the companies the fund has made investments in.



1. Prime Financial Group

Prime Financial Group (PFG) (http://www.morningstar.com.au/Stocks/NewsAndQuotes/PFG) is a wealth management firm. The company accesses its clients through its relationships with accounting firms. The business has partnerships with 30 accounting firms. It owns equity in nine accounting firms.

While the major banks control 80 per cent of the wealth management market, Prime Financial Group is looking to secure opportunities among people wanting independent advice.


Prime Financial Group chief executive Simon Madder says only one in five Australians receive advice, and with the pool of superannuation growing, this should provide more opportunities for businesses like Prime Financial Group.

"While the banks may be big and sturdy, our business is positioned to provide more customised services to people looking to build their wealth," Madder says.

Prime Financial Group also plans to increase its alliances with more accounting firms, particularly as many of these firms are moving to address their succession plans.

Currently, 70 per cent of Prime Financial Group's revenue is derived from Victoria. Madder hopes to secure more revenue from other parts of Australia through joint ventures with accounting firms.

While many financial planners have panned the government's Future of Financial Advice reforms, Madder sees the reforms as an opportunity for the business.

"These reforms have increased the transparency of fees charged to clients for financial advice. The reforms will make people more conscious of costs. This means more opportunity for us given our fees are relatively cheap compared to those of major financial planning firms," he says.

However, the relatively cheap fees charged by Prime Financial Group have put margins under pressure.

Madder says the business is currently managing its margins by focusing on costs. The business is looking at increasing fees to better reflect the services it provides, given its current fees of around 1 per cent are "probably too cheap".

Madder says the company has no plans to partner with financial planning businesses because of "competing philosophies". He says accounting firms offer a higher growth strategy for the business, given the bulk of their clients are self-managed super fund trustees.

[mark100]

3 small cap financials that reported good results and appear poised for EPS growth in the year ahead…

PFG – EPS were flat at 1.7cps but on an underlying basis EPS was more like 1.9cps as the company claims $0.75m pre-tax of one-off restructuring costs were incurred in the first half. Based on the on-going savings this restructure has created a ‘proforma’ EPS is probably around 2.1cps.

For a company trading at 12c, cum a 0.5cps dividend there is value here, particularly when the business model is leveraged to improving FUM and investor sentiment. I think its probably trading at a multiple of around 5.5x FY14

The main negative is the dismal return on equity at less than 10% but that is due to overpriced bull market acquisitions sitting as goodwill on the balance sheet. You could write half of it off tomorrow and ROE would double with no impact on cash profit. I am surprised they haven’t written some off.

The other negative is net debt of $5.9m however that figure is reducing and appears to me to be entirely manageable.


FPS - EPS were up 48% to 10.1cps although FY12 was a year of higher costs due to legislation changes, restructuring etc so the percentage increase looks larger than it may have been on a true underlying comparison. DPS were 7c.

Trading at $1.00, the market cap is $31m and there is $9m net cash in the bank. ROE was 18% but adjusting for the excess cash ROE is well over 20%.

In the accounts they provided a sensitivity analysis showing an increase in NPAT of $1.57m for every 10% increase in FUMA. Against FY13 NPAT of $3,27m, that is significant leverage.

On my numbers FPS is trading well under 10x potential FY14 earnings, and that’s with 30% of its market cap sitting in cash.



AEF – Underlying EPS were 164cps of which over two thirds was earned in the second half as markets improved and cost costing initiatives kicked in.

The difference in reported earnings and underlying primarily relates to a negative revaluation of their property in Canberra, which is being held for sale.

Market Cap is $24m with no debt, almost $4m in cash with a $2m property up for sale. The proceeds of the property may be returned to shareholders.

FY14 EPS could easily come in at better than 230cps (that is simply from annualising H2 13 EPS). So at $24.00 the shares are potentially trading at less than 11x FY14.


All these stocks have had a rough few years and have been forced to cut costs and restructure etc due to the poor markets and in the case of FPS and PFG deal with legislative changes. In my view that should make them well positioned to benefit form the next market upswing. Also, with the change in government I see less risk of legislative changes adding to costs in the future.

Another interesting play is AFV. It’s not yet profitable but FUM now stands at $650m and the market cap is less than $5m, less than 1% of FUM.

[baller18]

Which one out of the 3 would be best to invest in mark? Thanks

[Joshuatree]

CAF int too but needs to sort legacy issues out.

[steve fleming]

Nice summary Mark.

Re PFG and FPS, are you concerned about the limited FUM growth (and outflows) experienced during FY13? (particuarly PFG: outflow of $37.4m in second half of FY13)

What do you see as the major catalysts for a re-rate of these stocks?

FPS also have an aggressive on market buy back happening, as well as paying a 7% ff div.

[mark100]

Which one out of the 3 would be best to invest in mark? Thanks

Baller18, they are all worthy of investment in my view, some higher risk/return than others.

FPS is probably the lowest risk. The MD owns 30% of the company and even in the last bull market they did not waste cash on over priced acquisitions. Hence their balance sheet remains in perfect condition. Despite this lower risk, they are still very leveraged to a pick up in the markets and investor confidence. I note over the past 2 years the MD has continually purchased shares from time to time. He has never sold.

PFG is the highest risk business in my view simply because of the debt on the balance sheet and high level of goodwill from the bull market spending splurge. But in saying that PFG is potentially very cheap trading at around 5x potential FY14 earnings so offers the greatest upside

AEF is probably more like FPS in terms of lower risk with a pristine balance sheet and net cash. But the shares are extremely illiquid (even more than FPS) which some may think makes it high risk! It’s also trading at the highest PE of the 3. The serial acquirer, IFL owns 19% of AEF so don’t rule out a takeover at some stage (the same applies to all these companies).



CAF int too but needs to sort legacy issues out.

Joshuatree, I do follow CAF but as you say the legacy issues keep dragging on. The 7 year statue of limitations will be up soon which should put an end to it. However even before CAF purchased PIS, in the days when it was called Alliance Finance, it was a dog stock so I really would need to see some runs on the board here before jumping in here!


Nice summary Mark.

Re PFG and FPS, are you concerned about the limited FUM growth (and outflows) experienced during FY13? (particuarly PFG: outflow of $37.4m in second half of FY13)

What do you see as the major catalysts for a re-rate of these stocks?

FPS also have an aggressive on market buy back happening, as well as paying a 7% ff div.

Steve fleming,

I think the poor FUM growth (mainly driven by outflows) is simply a factor of poor investor confidence in Australia. Despite the market being up 17% for FY13 confidence was still fragile, not helped by probably the worst government in a generation.

I note the higher than normal outflow for PFG in H2 13 but it was balanced by inflows and overall for FY13 I thought PFG’s inflows were quite good considering the market. If the market can stabilise above 5,000 I think a lot of these outflows will reverse. Combining that with positive market performance money managers should do well.

When I look at FPS, PFG and AEF compared with say BTT, TRG and KAM I note:

FPS – FY13 FUM growth of 7%, no breakdown of inflows and outflows.

PFG – FY13 FUM growth of 10% of which there were net inflows of $32m and market performance was $65m

AEF – FY13 FUM growth of 13% of which net inflows were $1m and market performance was $80m

TRG – FY13 FUM growth of 4.6%. I don’t have 1st quarter figures but for the final 3 quarters net outflows were $2.76B and market performance was $2.41B. Despite this poor performance the stock has more than doubled!

BTT – FY13 FUM growth of 21% but it was only 8% for the Australian business. Growth of 58% occurred for the UK business. As demonstrated by the likes of MFG and PTM overseas equities have been in favour while Australia underperformed.

KAM – FY13 FUM fell 3% despite their funds returning 25-30% for the year! And like TRG the stock has still doubled.

So when comparing FPS, PFG and AEF to other aussie based financials they actually have performed quite well yet are trading at quite a discount.

[Joshuatree]

Invaluable inside out knowledge there Mark; thanks for sharing.

[baller18]

Thanks heaps mark!

[mark100]

FUM only increased by 2.9% in the second half, and the minimal gains in the first half were from asset valuations not fund inflows - so I think they are still currently experiencing a high level of fund outflows as the market has had a stonking run this half year, and to only gain 2.9% on the back of that is pretty poor. Consequently I took FPS off my watchlist this week.

Hi KW, The XJO only increased by 2.4% from 31 Dec to 30 June 2013, hardly stonking! So a 2.9% gain is not that bad. Part of the problem for the financial planners is that many investors have been invested in lower risk cash based products in recent years hence the full value of stock market gains may not come through in the short term. In theory increased investor confidence will see them switch to higher weighted equity products that will also attract a higher margin.

Since 30 June the market is up 10% which is why I expect the performance of these stocks to pick up in the future. From 2005 to 2007 FPS run from 50c to $3 and EPS quadrupled, so it is leveraged to the market! Anyway if I am proved wrong and it fails to move up I will move on...

[soulman]

Seems everyone wants a piece of the Trust Company (TRU). Consolidation in the industry seems to be riped, with IFL the predator in most recent transactions.

PPT, IFL and EQT are currently fighting for TRU. I am keen to know which coy is next on the radar with you pointing out about AEF and possibly EQT.

[mark100]

Seems everyone wants a piece of the Trust Company (TRU). Consolidation in the industry seems to be riped, with IFL the predator in most recent transactions.

PPT, IFL and EQT are currently fighting for TRU. I am keen to know which coy is next on the radar with you pointing out about AEF and possibly EQT.

soulman, I've been in both TRU and EQT since the initial bid. With IFL now picking up that 13% stake in EQT you would have to think it will fall to IFL in the next 12-18 months. I increased my holding in EQT yesterday

[soulman]

soulman, I've been in both TRU and EQT since the initial bid. With IFL now picking up that 13% stake in EQT you would have to think it will fall to IFL in the next 12-18 months. I increased my holding in EQT yesterday

Well timed sir. So since Feb 21st.

TRU was a bargain at the first bid and now the heavies are fighting alongside EQT. Surprised that AMP is not in the picture. Maybe now the valuation for TRU is a bit too rich but I reckon they can get richer because of egos.

I try to get some EQT for their div a few weeks back but missed it. These illiquid stocks are hard to get unless you chase them or got lucky someone filled your open buy order.

Thanks for all those shares you listed. What do you think of this newly formed company HUB.

[steve fleming]

Westpac/ BTT still selling down FPS

Substantial overhang (2.4m shares) to churn through - although they don't seem keen to sell below $1

[mark100]

Westpac/ BTT still selling down FPS

Substantial overhang (2.4m shares) to churn through - although they don't seem keen to sell below $1

Yeah they have been a capper for a few months now. FPS won't go far until someone takes that stock off their hands.

On the plus side, PFG chart is moving up and has made 52 week highs

[steve fleming]

Yeah they have been a capper for a few months now. FPS won't go far until someone takes that stock off their hands.


Another 1% let go over the last week or so

[mark100]

AEF – Underlying EPS were 164cps of which over two thirds was earned in the second half as markets improved and cost costing initiatives kicked in.

The difference in reported earnings and underlying primarily relates to a negative revaluation of their property in Canberra, which is being held for sale.

Market Cap is $24m with no debt, almost $4m in cash with a $2m property up for sale. The proceeds of the property may be returned to shareholders.

FY14 EPS could easily come in at better than 230cps (that is simply from annualising H2 13 EPS). So at $24.00 the shares are potentially trading at less than 11x FY14.



Nice guidance from AEF. Profit will more than double this year. Underlying EPS for FY14 will probably be in the order of 250cps so it's trading at around 10x FY14. Yield is also over 7.5% FF.

FY14 will most likely be a record profit year for AEF yet the shares trade at less than half their heady 2007 level

[Stranger_Danger]

Yep, have plenty of AEF, keen on more at under $25.

If only the directors and former directors would stop fighting each other and concentrate on the damn business...

[steve fleming]

FPS had a very strong quarterly - they had no requirement to release a 4c, but thought that the cash flow information was such that it was market sensitive

A bit of a break-out happening, as the big sellers seem to be taking a break for the time being.

[Stranger_Danger]

Plenty of FPS too. You don't need Xero to be having a good month lol.

FPS has much further to go.

[mark100]

FPS had a very strong quarterly - they had no requirement to release a 4c, but thought that the cash flow information was such that it was market sensitive

A bit of a break-out happening, as the big sellers seem to be taking a break for the time being.

I have been whinging to FPS about their poor disclosure. The cash flow statement is handy but surely it would not be too hard for them to disclose their FUMA at quarterly intervals. It's pretty much standard practice in the industry.

Still holding decent amount of FPS and AEF, been buying more over the past month or so

[steve fleming]

http://www.fool.com.au/2013/11/07/which-fund-management-company-should-you-own/

Which fund management company should you own?

t’s well known that fund management companies record much higher profits when the market is buoyant. This is because fund managers usually charge a management fee that is a percentage of their funds under management (FUM). When the market is up, fund managers invariably have more FUM, because the funds they are managing have grown through increasing investment returns.
A secondary effect of a rising market is that investors (for all the wrong reasons) are generally less likely to withdraw funds during a period of strong returns. Once the music stops, FUM can take a dive as investment returns turn negative and investors withdraw money. It’s fair to say that fund management is a cyclical business.
As Motley Fool contributor Peter Andersen writes (http://www.fool.com.au/2013/11/01/macquarie-group-beats-forecasts-with-strong-interim-profit-rise/), Macquarie Group (ASX: MQG) has improved earnings consistency with its shift towards funds management. Not only that, the profligacy of IPOs and positive sentiment is a positive for Macquarie’s investment banking business. Should the current optimism continue, Macquarie is very likely to grow profits.


Macquarie is worthy of consideration because the company was able to withstand the GFC while one of its major competitors went out of business. However, some commentators have suggested that the “millionaire factory” has overpaid executives in the past. The same cannot be said for boutique funds management company Fiducian Portfolio Services (ASX: FPS).


Fiducian has a network of in-house financial advisors and franchisee advisors. However, about 70% of its revenue comes from its boutique funds management business. Fiducian may not be the brightest star in the funds management universe, but the company has recorded reasonable results over the long term. Its most successful fund, which invests in smaller companies, has returned an average of 10.9% p.a. over the last 10 years. The Fiducian Australian Shares Fund has returned 9% p.a. over the same timeframe.
Fiducian’s cash flow statement for the quarter to September 2013, released today, reports net operating cash flow of over $1.8 million. That’s not bad for a company with a market capitalisation of under $40 million. Fortunately for shareholders such as myself, the company has a good history of paying dividends, and trades on a trailing yield of 5.9% fully franked. I consider Fiducian Portfolio Services to be attractive at current prices.


Another fund manager trading on an impressive (trailing) dividend yield is Hunter Hall(ASX: HHL). Hunter Hall manages the listed fund Hunter Hall Global Value (ASX: HHV), which is up about 17% in FY 2014. Hunter Hall’s unlisted Value Growth Trust has returned 7.4% p.a. in the last 10 years and its Australian Value Trust has returned 5.5% in the same timeframe.
Hunter Hall (the management company) has a market capitalisation of about $60 million and trades on a trailing yield of about 8.2%, partially franked. In 2012, the company hired David Deverall as the new managing director. Deverall previously led blue chip fund manager Perpetual (ASX: PPT). While Perpetual does have a very strong brand, the company yields less than the other fund managers mentioned in this article. Perpetual currently has a trailing dividend yield of about 3.6%, fully franked.

[steve fleming]

http://www.fool.com.au/2013/11/07/which-fund-management-company-should-you-own/



Macquarie is worthy of consideration because the company was able to withstand the GFC while one of its major competitors went out of business. However, some commentators have suggested that the “millionaire factory” has overpaid executives in the past. The same cannot be said for boutique funds management company Fiducian Portfolio Services (ASX: FPS).


Fiducian has a network of in-house financial advisors and franchisee advisors. However, about 70% of its revenue comes from its boutique funds management business. Fiducian may not be the brightest star in the funds management universe, but the company has recorded reasonable results over the long term. Its most successful fund, which invests in smaller companies, has returned an average of 10.9% p.a. over the last 10 years. The Fiducian Australian Shares Fund has returned 9% p.a. over the same timeframe.
Fiducian’s cash flow statement for the quarter to September 2013, released today, reports net operating cash flow of over $1.8 million. That’s not bad for a company with a market capitalisation of under $40 million. Fortunately for shareholders such as myself, the company has a good history of paying dividends, and trades on a trailing yield of 5.9% fully franked. I consider Fiducian Portfolio Services to be attractive at current prices.

just on this, Claude Walker who contributes to Motley Fool, has his own website

He has a few more comments about FPS here: http://ethicalequities.com.au/fiducian-portfolio-services-announces-growing-operating-cashflow-asx-fps/

He has a lot more detail on FPS if you subscribe to his hidden report

[blackcap]

Thanks for the info on FPS and links. It is a company I have had a small holding in for a while now and have been happy with. But with their latest quarterly being out I can see a substantial re-rating happening pretty quickly. If you annualise the quarterly result the FY cash flow is looking pretty impressive for a company with a market cap of $40m. Am thinking of adding to my holding for both great divs and potential upwards re-rating.

[steve fleming]

PFG closing today at what appears to be a multi year high

not sure how their FUM growth is going though; as reading their investment commentary, they have been bearish equities for many months

they always provide a market sensitive AGM update, so hopefully some good news in a couple of weeks

[Stranger_Danger]

Even WIG is making a few bucks again. Clearly a better environment for these companies at present.

[mark100]

Bullish AGM release from AEF. FUM continue to grow, now up 15% for the financial year to date. And that's not just from market movement, inflows are very solid

[soulman]

EQT released an update yesterday. NPAT from operating business projected to be up 10 to 15% from PCP.

[mark100]

Big profit jump forecast for HFA has prompted me to take a position. However it may not be as cheap as it first appears as there is a convertible note conversion in FY15 that will result in a lot of extra shares being issued, along with some offsetting interest costs.

Cash generation is very high however due to the high amortisation charge that reduces reported profit but still ends up in the bank account

[soulman]

Mark, what is your takes on the market in the next upcoming reporting season. Bullish or bearish? Also, are you cashed up or mostly invested?

Keen to know your view.

[mark100]

Mark, what is your takes on the market in the next upcoming reporting season. Bullish or bearish? Also, are you cashed up or mostly invested?

Keen to know your view.

Hi soulman, I am around 80% invested which is pretty high for me as I usually like to keep a bit of cash for opportunities, placements etc.

I'm very conscious that the market (US in particular) is ripe for a correction but the same time I feel the companies I am holding should all report pretty good interim results. I have no mining or mining services exposure and as usual a pretty high financial weighting.

In the event of a correction I see it as an opportunity. I think the Australian market will have another positive year a lot of money is only just coming back to the market for the first time since the GFC

[Huang Chung]

Been buying a few KAM.

FUM has gone up from $742.5m (1 July 2013) to $873.2m as at 1 January 2014. Not too shabby at all.

[soulman]

Hi soulman, I am around 80% invested which is pretty high for me as I usually like to keep a bit of cash for opportunities, placements etc.

I'm very conscious that the market (US in particular) is ripe for a correction but the same time I feel the companies I am holding should all report pretty good interim results. I have no mining or mining services exposure and as usual a pretty high financial weighting.

In the event of a correction I see it as an opportunity. I think the Australian market will have another positive year a lot of money is only just coming back to the market for the first time since the GFC

Thanks Mark for your valuable insight. Mining services coy are definitely to avoid.

The upcoming reporting season will paint a clearer picture for all of us.

Dividends will be the theme again IMO.

[mark100]

AFV - Market Cap $7.5m, $2.5m net cash. OCF for 6 months to 31 Dec of $0.55m. FUM $620m up from $480m 6 months ago.

Very illiquid. I've held since low 30s. KBC has been increasing its stake

[Huang Chung]

An excellent half yearly reported by CAM.

6c is quite a handy interim dividend

http://stocknessmonster.com/news-item?S=KAM&E=ASX&N=401672

[soulman]

An excellent half yearly reported by CAM.

6c is quite a handy interim dividend

http://stocknessmonster.com/news-item?S=KAM&E=ASX&N=401672

You meant KAM? Yeah that day it got shot down to 73 cents, I was looking at getting more but did not pull the trigger.

Very good result. But those performance fees are quite big. Is it sustainable?

Anyway, dividends are big and no debt. Fit my investment criteria any day. Going ex-dividend of 6 cents this coming Monday.

[Huang Chung]

Yeah, don't know why I said CAM....it's KAM.

Big performance fees, and quite likely not to be repeated half after half, but still, 6c on an 80c share price is not to be sneezed at.

[mark100]

Yeah, don't know why I said CAM....it's KAM.

Big performance fees, and quite likely not to be repeated half after half, but still, 6c on an 80c share price is not to be sneezed at.

Yeah nice result. I had a few and sold at 82c mainly because 80% of revenue was performance fees. KAM has a history of having big halves followed by very small halves! Maybe I've sold a bit early but I always think with KAM you'll get another go it you wait.

[noodles]

Yeah nice result. I had a few and sold at 82c mainly because 80% of revenue was performance fees. KAM has a history of having big halves followed by very small halves! Maybe I've sold a bit early but I always think with KAM you'll get another go it you wait.
Does the same rule apply to hfa? Their upgrade is due to perf fees.

[noodles]

Does the same rule apply to hfa? Their upgrade is due to perf fees.

From the FY13 report... "Performance fee revenue is also higher this year at $1.295 million (2012: $0.245 million) reflecting the improved global equity markets and stronger investment performance of the Lighthouse funds this year. "

NPBT for FY13 was $5,568mil.

Forcasted 1H14 NPat is $6.4mill (I don't think they pay tax)

So performance fees look like they will be large in 1H14.

[mark100]

Does the same rule apply to hfa? Their upgrade is due to perf fees.

KAM's Market Cap (A$188m) as a percentage of FUM (A$870m) is very high, around 21%. HFA's ratio is around 1.3% (A$113m/A$8,700m).

While fee structures vary, KAM needs its funds to make a very good return before it can earn enough fees to justify its market cap. HFA on the other hand only needs to skim a very small percentage in order to justify its market cap. Therefore I regard HFA's revenue as more sustainable. HFA also benefits from the falling AUD as most of its FUM is in USD.

I don't regard either as a great long term investment as both have a poor track record at present but that doesn't mean you can't make money from them

[mark100]

KAM's Market Cap (A$188m) as a percentage of FUM (A$870m) is very high, around 21%. HFA's ratio is around 1.3% (A$113m/A$8,700m).

While fee structures vary, KAM needs its funds to make a very good return before it can earn enough fees to justify its market cap. HFA on the other hand only needs to skim a very small percentage in order to justify its market cap. Therefore I regard HFA's revenue as more sustainable. HFA also benefits from the falling AUD as most of its FUM is in USD.

I don't regard either as a great long term investment as both have a poor track record at present but that doesn't mean you can't make money from them

The other point I would note is HFA has around A$5m of amortisation in the half year result which is non-cash. So in effect HFA's cash earnings are around 65% higher than Statutory

[mark100]

AEF had a great report. NPAT 3% above the top end of the guidance range and up 150%.

Unlike many other wealth management plays at present AEF's FUM is not just going up from market movement, it actually has net fund inflows as well.

Given FUM is up 13% on where it was at the start of FY14 I expect the second half to be at least as strong as H1. That potentially gives underlying EPS of at least 273cps, ie FY14 PE of 11.5x current share price.

Discl. AEF is one of my largest holdings and it's very illiquid

PFG was poor. I had sold down a third after the AGM and dumped the rest in the first few minutes after the result. They just can't seem to get their sh!t together. The stock appears cheap but there is no growth, they need to do a massive goodwill write down and then that could make the debt ratio look a bit uncomfortable. If the market keeps flying they may do well at some stage but I think it's just a poor business at the moment

[mark100]

Posted this on hc. Careful though there appears to be a big seller lurking

The more research I do on HFA the more I think it's a bargain at current prices.

Obviously profit can swing around a bit due to performance fees. Looking back to pre GFC times the performance fees were much higher than they are today which shows the potential that is there for much higher profits.

In 2006 $13.5m of performance fees with year end AUM of $2.6b.
In 2007 $39m of performance fees with year end AUM of $3.9b. What a year!
In 2008 $9.4m of performance fees with year end AUM of $9.4b.

Since 2008 performance fees have been miserable at less that US$5m pa however H1 2014 was the first half since 2008 that showed some promise in this area.

I'm sure the future share dilution due to the conversion of the convertible notes is hindering the share price but in terms of reported profit, in around 2 years it will be boosted in the order of $9.2m pa when the management rights are fully amortised. They have been amortising at a rate of $9.2m pa and as at Dec 2013 have been amortised down to $22.9m.

Looking at a pro-forma FY14 estimate that includes full amortisation of the management rights and full conversion of the convertible notes:

H1 2014 NPAT - US$6.9m
H2 2014 NPAT estimate - US$5m (allowed for reduced performance fee)
Total reported FY14 NPAT - US$12m
Add Management rights amortisation - US$9.2m
Add interest saved on conversion of convertible notes - US$2.5m
Total Pro-forma 2014 NPAT - US$23.7m
Fully diluted shares on issue following C.N. conversion - 208m
EPS - US$0.114
EPS - A$0.124

So at $1.00 the proforma PE is in the order of 8x. In addition the fully diluted market cap is $208m with net cash in the order of A$25m.

What PE should a debt free global hedge fund manager with in excess of $8b AUM trade at? I would argue 15x is not hard to justify, giving a price target around $1.85. This target should rise as AUM grow and HFA's cash pile builds.

Obviously I hold...

[Lizard]

AFV - Market Cap $7.5m, $2.5m net cash. OCF for 6 months to 31 Dec of $0.55m. FUM $620m up from $480m 6 months ago.

Very illiquid. I've held since low 30s. KBC has been increasing its stake

What is happening at AFV? Huge drop in FUM last couple of months, now down to $229m... doesn't appear they've explained it well to the market either. Hope you are out, Mark!

[mark100]

What is happening at AFV? Huge drop in FUM last couple of months, now down to $229m... doesn't appear they've explained it well to the market either. Hope you are out, Mark!

Hi Liz, on 17 Feb they had a 'Mandate Announcement' which was going to cost them $220m of FUM. That was enough for me. I bailed at 65c. Strangely it was easy to sell because KBC was sitting in the market buying everything on offer at 65c!

Then on 19 Feb they announced a responsible entity change which cost more FUM. So I expected to see a large drop in FUM but I was still surprised to see they were down to $230m today.

Oddly enough through all this KBC has been buying bring their stake in AFV up to 20%. I had been looking at buying into KBC as a discount to NTA play but when I saw they were spending cash buying AFV while all this was happening I promptly changed my mind!

In the wealth management space I'm only in AEF, FPS, HFA and MFG at present. And GBT as an IT/wealth combo. Of the 3 wealth managers, I consider AEF to be the best buy at present, trading at around 11x underlying FY14 and possibly under 10x FY15. 2014 will be a record year for AEF yet it is trading at a 40% discount to its ATH. Just shows how mad 2007 was when the PE was almost 30. I'm still happy with FPS while HFA probably has the most embedded value but it could be a long process before the market takes notice

Edit, also holding a few CGF. KW's post a while back prompted me to take a closer look. The chart looks good

[Lizard]

Thanks Mark. You seem to have done very well with the Funds Management strategy. MFG seems to keep trucking along for me, but I've never taken on any of the others and stuck with the smaller platform providers in the financial services sector (PPS, RFL). AFV an interesting example of what happens when a manager loses popularity.

[noodles]

Thanks Mark. You seem to have done very well with the Funds Management strategy. MFG seems to keep trucking along for me, but I've never taken on any of the others and stuck with the smaller platform providers in the financial services sector (PPS, RFL). AFV an interesting example of what happens when a manager loses popularity.

Lizard, Mark100.

Do either of you have an opinion on hub24? They recently presented at the piefunds small cap conference. I was quite impressed. The share price of late is not impressive.

[mark100]

Lizard, Mark100.

Do either of you have an opinion on hub24? They recently presented at the piefunds small cap conference. I was quite impressed. The share price of late is not impressive.

noodles, I had a look when Pie got involved but as they weren't profitable and I couldn't see when they would be I didn't look any further. If I think a profit is within 12 months I will be more interested. There is also an upcoming IPO, www.managedaccounts.com.au that is a similar type of business I think. Priced at 39x FY15 NPAT. A bit steep for me particularly when the forecasts are questionable.

[Joshuatree]

I'm taking up my 1 for 3 CAF @ 32c and applying for more. Mkt likes the news and I'm believing in the turn around story and low entry looks good but DYOR. hows all the other FMA's performing for you all?

[mark100]

I'm taking up my 1 for 3 CAF @ 32c and applying for more. Mkt likes the news and I'm believing in the turn around story and low entry looks good but DYOR. hows all the other FMA's performing for you all?

I grabbed a few pre the ex date and then sold out. I'll be applying for my entitlement plus extra. The 2.2c div target is a promising sign that the turnaround is going to happen

[Joshuatree]

Smart move mark, sharpest tool in the shed . I'm more of a crayon attempting to join up dots.

[Huang Chung]

News today that K2 will be involved in managing a new international LIC to be listed in the next FY.

After selling out a few months ago, I picked up a small stake today on the presumption that K2 shareholders MIGHT get a look in on the float of the new LIC. The standard fare with these things seems to be subscribers get a free option for each share subscribed for. Have absolutely no idea if this will be the case with this new listing (or that K2 shareholders will even get a look in) but, for a small outlay, it seems worthwhile to get a foot in the door just in case K2 shareholders are offered a piece of the pie.

http://stocknessmonster.com/news-item?S=KAM&E=ASX&N=405941

[steve fleming]

http://www.fool.com.au/2013/11/07/which-fund-management-company-should-you-own/

Which fund management company should you own?

t’s well known that fund management companies record much higher profits when the market is buoyant. This is because fund managers usually charge a management fee that is a percentage of their funds under management (FUM). When the market is up, fund managers invariably have more FUM, because the funds they are managing have grown through increasing investment returns.

Fiducian has a network of in-house financial advisors and franchisee advisors. However, about 70% of its revenue comes from its boutique funds management business. Fiducian may not be the brightest star in the funds management universe, but the company has recorded reasonable results over the long term. Its most successful fund, which invests in smaller companies, has returned an average of 10.9% p.a. over the last 10 years. The Fiducian Australian Shares Fund has returned 9% p.a. over the same timeframe.
Fiducian’s cash flow statement for the quarter to September 2013, released today, reports net operating cash flow of over $1.8 million. That’s not bad for a company with a market capitalisation of under $40 million. Fortunately for shareholders such as myself, the company has a good history of paying dividends, and trades on a trailing yield of 5.9% fully franked. I consider Fiducian Portfolio Services to be attractive at current prices.


One of FPS' flagship funds, the Fiducian India Fund is up 33% in the last 6 months

the Fund is available on a number of wrap platforms and is being widely marketed (ie not just to the FPS client base)

With the new favourable political environment in India, and the Indian stock market breaking all records (and now surpassing ASX in terms of market capitalisation) this is likely to continue to attract fund inflow from Australian planners/investors looking for exposure to India.

the 33% return over the past 6 months will have significantly increased the size of the fund and thus the fees drawn by FPS

May not be a huge driver of earnings, but certainly helps momentum

[mark100]

One of FPS' flagship funds, the Fiducian India Fund is up 33% in the last 6 months

the Fund is available on a number of wrap platforms and is being widely marketed (ie not just to the FPS client base)

With the new favourable political environment in India, and the Indian stock market breaking all records (and now surpassing ASX in terms of market capitalisation) this is likely to continue to attract fund inflow from Australian planners/investors looking for exposure to India.

the 33% return over the past 6 months will have significantly increased the size of the fund and thus the fees drawn by FPS

May not be a huge driver of earnings, but certainly helps momentum

Good point stevefleming. I continue to hold FPS

[soulman]

Good point stevefleming. I continue to hold FPS

Is PPT 11.89% holdings of TRG purely a fundies investment or a future takeover?

[mark100]

Posted this on hc. Careful though there appears to be a big seller lurking

The more research I do on HFA the more I think it's a bargain at current prices.

Obviously profit can swing around a bit due to performance fees. Looking back to pre GFC times the performance fees were much higher than they are today which shows the potential that is there for much higher profits.

In 2006 $13.5m of performance fees with year end AUM of $2.6b.
In 2007 $39m of performance fees with year end AUM of $3.9b. What a year!
In 2008 $9.4m of performance fees with year end AUM of $9.4b.

Since 2008 performance fees have been miserable at less that US$5m pa however H1 2014 was the first half since 2008 that showed some promise in this area.

I'm sure the future share dilution due to the conversion of the convertible notes is hindering the share price but in terms of reported profit, in around 2 years it will be boosted in the order of $9.2m pa when the management rights are fully amortised. They have been amortising at a rate of $9.2m pa and as at Dec 2013 have been amortised down to $22.9m.

Looking at a pro-forma FY14 estimate that includes full amortisation of the management rights and full conversion of the convertible notes:

H1 2014 NPAT - US$6.9m
H2 2014 NPAT estimate - US$5m (allowed for reduced performance fee)
Total reported FY14 NPAT - US$12m
Add Management rights amortisation - US$9.2m
Add interest saved on conversion of convertible notes - US$2.5m
Total Pro-forma 2014 NPAT - US$23.7m
Fully diluted shares on issue following C.N. conversion - 208m
EPS - US$0.114
EPS - A$0.124

So at $1.00 the proforma PE is in the order of 8x. In addition the fully diluted market cap is $208m with net cash in the order of A$25m.

What PE should a debt free global hedge fund manager with in excess of $8b AUM trade at? I would argue 15x is not hard to justify, giving a price target around $1.85. This target should rise as AUM grow and HFA's cash pile builds.

Obviously I hold...

Looks like the market is catching on here. And the buyback of the CNs improves the EPS well above what I estimated in my previous post

[Joshuatree]

Of many of the Funds management stocks CAF is holding up well above 60 and180 DMA
BLA above 180 just below 60
HFA dropping to 60 DMA
AEF just above 60
PPS below 60 above 180
MFG,TRG hitting 180
FPS,EQT,KAM,AFV,PFG,RFL,BTT,PTM,PPT,CGF all below 180 DMA


Holding CAF (just)

[mark100]

Of many of the Funds management stocks CAF is holding up well above 60 and180 DMA
BLA above 180 just below 60
HFA dropping to 60 DMA
AEF just above 60
PPS below 60 above 180
MFG,TRG hitting 180
FPS,EQT,KAM,AFV,PFG,RFL,BTT,PTM,PPT,CGF all below 180 DMA


Holding CAF (just)

I'm all out of CAF and AEF, mainly on valuation grounds for the time being. 75% of FPS were sold in the week after going ex div although I still have most of my HFA which has only been trimmed slightly. Should have sold them all when the facebook hype was on!

All up I'm about 70% cash at the moment even though I hate holding cash

[Joshuatree]

CAF still holding up there haven't checked others. You back in buying a few FPS Mark?

[mark100]

CAF still holding up there haven't checked others. You back in buying a few FPS Mark?

Hi Joshuatree,

Yes I have been picking up a few FPS near $1.70. It's a frustrating stock that moves in bursts, usually after results and then everyone loses interest for 6 months. They aren't great with guidance either, often very vague. They gave the stock standard line at the AGM that Q1 was ahead of budget and profits were expected top be higher this year. At least they also said it was the result of good inflows. Historical PE at $1.70 is 13x, or looking at cash NPAT it's around 12x with growth forecast for this year. $53m market cap, with $10m cash in the bank. At some stage I expect it will be taken over but that could be years away.

I sold AEF late Sept when it was going up while the market was getting hammered. Seemed irrational so I sold. AEF is very illiquid so you have to sell when there are eager buyers and I didn't expect the market was going to bounce back like it did. Now there is a persistent seller at $42 and sometimes below. They have offloaded plenty but I suspect have a lot more to go. AEF's net inflows have been excellent and Q1 continued this trend so I have bought back. It's a little hard to forecast AEF's profit at the moment as they cut fees by a fair margin but have also taken out a lot of costs. I expect guidance in the coming days/weeks which should give a clearer picture. In summary this is a stock that is experiencing great inflows with NPAT very leveraged to extra FUM.

HFA is my other preference in this sector for reasons I have explained previously. I see even Pie funds has taken a position. I expect a new dividend policy to be announced at some stage now there are no Convertible Notes on issue and they have the freedom to pay out what they please. HFA is a USD business and the AUD is in a downtrend against the USD.

I have a few CAF again but it has run hard since the rights issue at 32c and it's hard to estimate what sort of profit they are going to earn given all the moving parts. I suspect consensus is on the low side and I'm hoping the AGM will give a bit more guidance.

Also have a few TRG for a trade at present. Merger with Northern Lights will see around 50% of earnings US derived.

[winner69]

Interesting developments in Hunter Hall HHL

Majority shareholder packing a sad and selling out at about a 1/3rd of current price

http://www.smh.com.au/business/fund-manager-peter-hall-loses-27m-as-he-seals-exit-with-sale-to-soul-pattinson-20161230-gtjx06.html

[Joshuatree]

Who's holding what 3 years later. I hold IFL and PTM indirectly.

[Gonzo]

anyone following MFG
Hamish Douglas is seriously smart, is a Buffet follower

[ratkin]

anyone following MFG
Hamish Douglas is seriously smart, is a Buffet follower

Yep, and MFF and MHH have a lot of confidence in them since 2007

expecting market drops so maybe should be on the look out for a fund company that does shorting, are there any good LICs in aus that do that?