General notes:

•  Financial figures:

Positives:

•  Operating leverage of the business showing. Revenue up 10% with NPAT up 22% (17% underlying). 
•  Final dividend of 21.1c fully franked. 39.3c fully franked dividend for the FY. At a closing price of $8.37 this represents a 4.7% yield. 
•  Platform Administration business continues to grow steadily:

•  Funds management business:
• FUM up around 15% with an additional increase of 11% in July 2024. This could contribution approximately $2.4m of revenue over the next year.

•  Continues to rank very highly compared to other fund managers returns.
•  ROE remains high at approximately 28%.
•  Market liked the results, up 13.88% at close to $8.37.

Negatives:

• Funds under advice only up 4%.
•  Longer term need to think of the impact of the focus on clients using Fiducian products. This will probably pass the test while they outperform compared to other managers but can expect more scrutiny if this isn't the case. 

Has the thesis been broken?

•  No, company performing as expected. Will be increasing my position as per my buying plan. 

Valuation:

Updating for NPAT expectation of $17m for FY25. 

•  NPAT = $17m
•  Target PE = 18
•  Target MC = $306m
•  Target price = $9.72

What are you expecting and what do you need to see over the next reporting season or generally into the future?

• NPAT growth of 10-15% over the next year.

Overview:

Fiducian Group is a financial services business that can be split into 3 segments:

• Platform administration - Provides an admin platform and tools for financial planners.
• Funds management - Run a range of funds that have generally done very well. Mostly within the super categories but also have a tech and India funds.
•  Financial planning - 80 financial planners in 45 offices.

The company is run by executive chairman Indy Sigh who holds around 1/3 of the company and is the founder. Performance mirrors that of what you would expect of an insider running the business. The company has been a consistent compounder over the last 10 years growing revenues and EPS. The company has a high ROE mainly thanks to a high payout ratio of dividends from earnings and increasing EPS.  

Main Thesis:

Thesis can be summarised by the following points:

• Consistently and stable compounder in terms of EPS and revenue growth.
• High ROE business and has been able to consistently maintain this.
• Decent dividend yield at around 4.8% (fully franked).
• Founder with significant skin in the game running the business.
• Australian financial services industry has the constant tailwind of superannuation money for sustained inflows no matter the environment.
• The funds management business is high performing compared to its peers. 
• Growth appears to have been steady and share price generally mirrors this. Overall a stable company with stable share price. 
• I couldn't find any evidence of direct findings against Fiducian as a result of the Royal Commision into financial services even though they do have vertical integration. 
• Seems to have decent transparency for example releasing 4C's quarterly to update investors even when they are not required. 
• Buying at a reasonable valuation of around 18x PE. Not cheap but not expensive. Will look to 
• Directors have been consistently buying shares on-market. Not huge amounts but the consistency of buying without selling is interesting. See image below (thanks to Market Index for information).  
• Share price chart is bottom left to top right moving without significant volatility most of the time. 

Risks:

• Thesis is strongly based on company continuing to be able to execute has they have before and that this growth will continue. 
• Founder moves on/retires. 
• Platform competing against other big players. 
• ROE falls way. Would show capital allocation deterioration or EPS growth slowing. 
• Returns of managed funds start to underperform.
• Illiquid, small trades can be the cause of noticeable price changes. 
• In-housing of investment management by super funds driving down overall fees available for others in the industry. 
• Increasing popularity of ETFs. 
• Regulatory pressure or regulation. Removal of ability to vertically integrate. 
• "Roboadvisors" start to become more attractive and effective than traditional funds management businesses.

Investment KPIs:

• Maintain a high ROE.
• Stable growth in dividend.
• EPS growth of 12%+ over time.
• FUM continue to grow = continued revenue growth at around 10% or greater (depending on market conditions). 

When to get out:

• Profit downgrades/EPS doesn't continue to grow.
• FUM doesn't grow.
• Founder leaving without a long transition planned.
• Funds performance especially conservative to growth don't continue to outperform compared to other managers.
• Founder starts to sell significant portions of shares. 
• Price below soft stop loss point (ie negative momentum).

Bought on Strawman and IRL.