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Valuation of $3.05
stale
Added 10 months ago

Update 15/06/2023

Haven't updated my valuation for a while but today's update seems to be positive for their overall growth trajectory.

UPAT guidance range of $11.3m-11.8m before performance fees. NPAT will be affected by integration costs and other one off revaluation costs and so I think overall NPAT after performance fees may end up being around $11.5m (I think they will update the market again next month after they calculate performance fees for FY23).

Using a PE of 30x as per below, gives a valuation of $3.05

Update 14/07/2022

AEF updated their NPAT guidance to $10m-$10.2m following calculation of performance fees.

Taking the mid range NPAT guidance of $10.1m and applying a PE of 30 gives a valuation of $2.69.

I am giving them the benefit of doubt that they will be able to grow their NPAT again in the coming years especially with the influx of FUM from the Christian Super merger.

Disc: Not held.

Update 16/06/2022

More detail given in this Straw

If UPAT/NPAT is likely to be flat year on year then perhaps a PE of 40 may be a bit flattering. Net inflows are still increasing and if the general market sentiment turns positive then you could see profit increasing again in future years. However, as I stated in my straw, there may need to be stark outperformance in future years for them to start collecting performance fees again.

Will just give them a PE of 30 for now and wait for more news in the future.

Disc: Not held.

Original Valuation

AEF did about $11m in NPAT in FY21 and I'm going to assume they will do around $12m for FY22. Growth is slightly slowed due to general market conditions which have impacted their FUM growth.

FY22 earnings will also be interesting as their performance fees are collected on June 30 so if their funds don't meet expected benchmarks then this could impact the amount of fees they will be able to collect and thus reduce NPAT. At the present stage no guidance for FY earnings have been given.

So assuming $12m NPAT for FY22 and giving them a PE of 40, it gives a valuation of $4.27.

I see this as a good entry price for a company which should have good structural tailwinds once market conditions become more favourable.


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#Financials
stale
Added 10 months ago

AEF released a FUM update and earnings guidance for FY23. From their announcement:

bbf0f140f7497242e5828e89d22102fd7a8c54.png

The Christian Super merger has been a positive for AEF and FUM has reached 9b for the first time in their history.

Still recording net outflows in Managed Funds which is a little disappointing however this may start to reverse if we are at the start of a new bull market (time will tell I guess).

Earnings Guidance was a little more positive however:

e1421f351c4b3eec41d6be23397def2da2cc95.png

UPAT last year came in at $10.2m which was down from FY21 of $11m. I do expect AEF to collect a performance fee on their High Conviction Fund given they have out performed the benchmark in the last 6 months (performance fees are calculated daily).

54397c312dc2edf8297d69bfd09bc40277c238.png

I see today's announcement as a good sign that the merger with Christian Super has had a benefit on the overall business. Growth trajectory seems to be positive again.

Unfortunately I did not buy in when the share price hit my valuation target so do not currently hold shares.

Full announcement here

Disc: Not held.

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#Financials
stale
Added 10 months ago

Share price has gone lower but still trading at 59x trailing earnings

Although revenues have gone up, it is coming at the cost of reduced fees and hence lower margins and profit. Profit was lower than last year as well.

A lift in performance of the overall portfolio and FUM would be the only way to arrest the declining share price as that would earn performance fees.

Maybe worth a revisit once it gets back to 40x earnings.

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#Business Model/Strategy
stale
Added one year ago

Checking again and can't believe how far AEF has fallen

But margins and net income have crashed and now trading at 80x earnings.


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#Industry/competitors
stale
Added one year ago

Got to hand it to Australian Ethical

They were totally spot on with Strawman favourite Cogstate and cut before the trading halt.

Maybe they got freaked out by the ratings on that career review website? Hard to say as some said most of the reviews are fake.

Starting to win my respect again


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#Bull Case
stale
Added one year ago

Not sure what why the spike in share price given AEF has averaged down on a few dubious holdings recently

Was thinking about going back in at 4.50 but still looks too expensive given the quality of their holdings such as nxl and eml

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#Lend Lease and Koalas
stale
Added 2 years ago

Even though this article relates to Lend Lease's development in the Mt Gilead Koala Habitat, I thought better to post under Australian Ethical as their investment in Lend Lease doesn't align with their core values in standing up for environmental issues (April 2022).

https://www.smh.com.au/environment/conservation/sydney-region-s-last-healthy-koala-population-threatened-by-development-20220413-p5ad4w.html

To balance the view, here is a article from their website from February 2022 stating their position.

https://www.australianethical.com.au/blog/our-position-on-lendlease-development-figtree-hill-and-and-mt-gilead/

From the latest SMH article, it doesn't look like Lend lease is adhering to the conditions but it doesn't look like AEF has pulled the plug yet on their investment with Lend Lease.

Happy to stand corrected.

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Valuation of $4.00
stale
Added 2 years ago

Wealth and superannuation manager specialising in companies that are socially responsible and provide benefit to the environment while reducing climate change. AUM and profits have also grown proving that popularity in ethical investing is only going to increase.

Update

June 2022: Reducing the valuation from $7 to $4. After their massive averaging down on EML Payments, Mach 7, Lend Lease and Nuix, AEF no longer aligns with my philosophy in holding well managed companies so no longer hold. Still a bit of FOMO with price at $5.50 so there will be people who disagree and see the PE of 50 good value despite being out of the money in NXL and EML. But if it goes down $4 I may be interested.

Sept 2020: As I've discovered recently, one major risk holding AEF is government policy changes in super. Any adverse change such as early withdrawal due to Covid-19 pandemics will hurt the share price. Furthermore IOOF exited their holding in late July.

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#ASX Announcements
stale
Added 2 years ago

2 Announcements today from AEF

AEF and Christian Super merger

AEF and Christian super have signed a Successor Fund Transfer which will see Christian Super members be transferred to AEF later this year or early 2023.

This will bring in $1.96b of FUM into AEF

Full announcement here

FUM and Earnings Guidance Update

AEF recorded $102m of FUM inflows for the quarter bringing net inflows for FY22 to $943m. Total FUM at June 30 was $6.2b (up 2% since June 2021).

Performance fees of $0.4m for their "Emerging Companies Fund" were collected given its outperformance against the benchmark which will add $0.2m to UPAT, bringing earnings guidance range to between $10m-10.4m (FY21 UPAT was $11.1m).

There was no mention of performance fees for their "High Conviction Fund" so I'm assuming they did not beat the benchmark for this fund.

Full announcement here

My Takeaway:

The transfer of Christian Super members will bring in substantial FUM inflows which will benefit AEF going forward. However their performance on their funds was disappointing leading to a decrease in profit YOY.

Will update my valuation accordingly.

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#Risks
stale
Added 2 years ago

AEF share price has been holding up quite well despite some negative press. Possible reasons:

  • Possible windfall profit from the HRL takeover by ALS labs.
  • Upcoming takeover of Christian Super's funds under management of 2 billion


Some doubts:

  • Given the falls in the market, is the mark to market value of Christian Super funds really 2 billion? Anyone buying AEF here thinking it is worth 2 billion now when it might be slightly less could be too optimistic.
  • AEF is sub holder of EML payments which had gone down 20%+ after the sudden departure of the CEO. While a big drop, the holding is only $15.9m (from $19m) and is small versus the $6billion AUM. So maybe the market here is giving this a pass. But it does reflect poorly on their decision-making.
  • AEF holds quite a bit of Genworth Mortgage insurance ($51m). With house prices going down, Genworth price may follow.



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#ASX Announcements
stale
Added 2 years ago

Quarterly FUM update

Despite net inflows of about 200m, Funds Under Management fell by 1.6% due to market volatility to 6.86 billion.

https://www.australianethical.com.au/globalassets/pdf-files/asx-announcement/2022/20220421-aef-fum--flows-q3-fy22.pdf

As I mentioned in the last straw, this was expected due to the overweight exposure to growth sectors especially tech, medical and pharma while being short on value and commodities (apologies but just couldn't resist)

Bit disappointed but still holding for now.

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