Future Group entertains IPO after strong quarter

Behind the AFR paywall.

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.

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

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

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

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

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.

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.

Although I agree the valuations are a bit over the top after the guidance update, it seems price is holding quite strongly today surprisingly amid the market carnage. The only reason I can think of is the upcoming merger with Christian Super which adds "artificially" adds another 2b funds under management and there must be a few out there who thinks now is good value.

I think time will tell. I'm holding off on this until price comes down more.

AEF provides guidance that UPAT will be between 9.8m and 10.2m

FUM 6.6 billion down 3%

Net flows however still positive

Also institution redemption of 340m. So one institution is withdrawing from AEF

Finally the merge with Christian Super with 2 billion AUM is still ongoing and nearly complete

Disc: not held

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.

AEF set to merge with industry fund Christian Super.

https://insideadviser.com.au/australian-ethical-to-bulk-up-with-potential-fund-merger/

However I believe it is only a MOU with member accounts moving to AEF so perhaps still in the early stages.

Reasons set below (quoted directly from the article)

These are assets and opportunities where an investor is seeking both investment returns, but also having a positive impact on the community or environment, or both. The deal highlights more collateral damage resulting from APRA’s performance test, which forces underperforming funds to either shut down or merge. Christian Super had performed poorly over the last few years for multiple reasons, whereas Australian Ethical, which is a retail rather than an industry/union super fund, had been near the top of most performance tables.

Disc: Held, but I did lighten a little when it went above 11+. I am aware it got wrecked the last few months as a result of their exposures to tech and pharma companies.

Thoughts on AEF Guidance

AEF announced recently that their underlying profit after tax will be around $10-11m. Much of this contribution is from performance fees of $2.89m earned from the emerging companies fund beating the benchmark.

At the time of the announcement the share price dropped from $8 to the low $7s and only just recovered.

Although this has taken over my main holding, I still think this is expensive even after accounting for the increased guidance. Taking into account the underlying profit after tax, the PE will still be around the high 70's (currently it is 80+)

The ethical theme is nice (and I think some poor soul got carried away at $9 in May). But the price to invest in ESG at this level may be expensive.

In the meantime I'll have to try and live with the volatility of AEF in my portfolio.