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.

[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?