Overview Comment:

Good result overall, most segments and KPIs all moving in the right direction. There continues to be operating leverage in the business. However, valuation is now fair in my view but not overvalued to the point where I won't be adding.

Market liked the result up just under 10% after results. However, opened only up slightly then throughout the day moved up to 10% gain. Note for next time to be ready to make a quick call, this happened last results as well. Did see the results in the morning and thought overall they were good so could have pulled the trigger then. Will give it a week or two before buying again, see what happens after the rush to buy after results ends. Last time this resulted in about a 10% drop in price after this rush. Given the fair valuation not in any great rush to jump in.

General notes:

• Staff numbers only grew slightly. Wage increases have been offset by efficiency gains.

Positives:

• PCP financial figures good:
• Net revenue up 15%
• Underlying NPAT (NPATA basically) up 20%
• NPAT Up 26% to $8.6m
• EPS = 27.4c
• Figures above show Fiducian continues to have operating leverage.
• Dividend of 21.9c fully franked.
• Funds under administration up 14% YoY and FUM up 15% YOY.
• All segments growth in revenue and PBT look good:

Negatives:

• Going to stop cycling the excellent previous longer-term results over the next few years as the poor 3-year return moves further into the past. Funds could be less of a selling point as a result. At least 1-year results appear to have done ok overall.

Has the thesis been broken?

• No, company is doing well at or above my expectations. However, is at a full valuation. Will add as per buying plan.

Valuation:

Updating for NPAT expectation of $17.5m for FY25.

• NPAT = $17.5m
• Target PE = 18
• Target MC = $315m
• Target price = $10.01

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

• NPAT growth of 15% minimum given 26% gain in 1H.
• Monitor risk in the case of a market downturn.
• Be ready to go for a buy if results look good on release, these results and the previous had a big move from open to close. There was a chance to get in early that day if I was ready.

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.