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  1. #1
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    Default Funds Management Companies

    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

  2. #2
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    Default

    Fiducian

    Clime

    Hunter Hall

    ...all come to mind.

  3. #3
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    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

  4. #4
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    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?

  5. #5
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    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.


  6. #6
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    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.
    ----
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    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.

  8. #8
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    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.

  9. #9
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    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.
    ----
    Never try to teach a pig to sing. It wastes your time and annoys the pig.
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  10. #10
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    anybody rate PPT (perpetual)?

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