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.

The market is liking the results out this morning

https://investorpa.com/announcement-pdf/20240815/23945.pdf

APRA imposes licence conditions on Fiducian over data accuracy issues - InvestorDaily

APRA imposes licence conditions on Fiducian over data accuracy issues

 15 July 2024

APRA has imposed additional licence conditions on Fiducian to address data accuracy concerns ahead of the annual superannuation performance test.

In a statement on Monday, the prudential regulator said it has imposed additional licence conditions on Fiducian Portfolio Services Limited to address data accuracy and completeness concerns ahead of the annual superannuation performance test, affecting its management of Fiducian Superannuation Service with 8,770 members and $2.57 billion in assets.

The regulator explained that the action comes after issues were identified with the accuracy and completeness of data submitted previously, which, it said, raised concerns about FPSL’s ability to identify, assess, monitor, and submit accurate data.

Under the terms of the new licence conditions, which came into force from 15 July 2024, FPSL must:

- take reasonable steps to ensure that an expert completes a review of the accuracy and completeness of data submitted ahead of the 2024 performance test;

- develop and implement a remediation plan, to be approved by APRA, to address any recommendations or areas of concern identified by the expert; and

- provide APRA with an attestation regarding the accuracy of data and governance processes for data submissions.

“APRA places a high degree of reliance on the quality and accuracy of the data we receive to drive greater transparency of the industry and strengthen the accountability of trustees to act in the best financial interests of their members," said APRA deputy chair Margaret Cole.

"This includes the data submitted for the annual performance test, a powerful tool used by APRA to hold trustees to account for fund performance, fees and costs".

Inside Ownership                   Ordinary Shares    %FID Issued       Net Value at $7.75

Inderjit (Indy) Singh                10,949,091                  34.78%            $84.86m

Frank Khouri                           268,323                       0.85%              $2.08m

Kerry Skellern                         8,000                           0.03%              $62K

Sam Hallab                              127,027                       0.04%              $984.5K

Total                                        11,352,441                  36.07%            $87.981m

Management Bio's

Inderjit (Indy) Singh OAM -Executive Chairman 

Indy Singh is the Executive Chairman of Fiducian Group and founded the organisation in 1996. Prior to that, he spent over eight years with one of Australia’s largest financial planning and investment management companies, where he played a key role in the development and management of its funds management and research businesses.

Frank Khouri - Non-Executive Director

A CPA accountant for over 30 years, Frank Khouri owns and operates a successful Accounting Practice and Fiducian Financial Services Franchise in Windsor (NSW) where he is an Authorised Representative. A Registered Company Auditor for 24 years, he is also an active member of the Board’s audit committees.

Kerry Skellern OAM -Non-Executive Director

Kerry Skellern was appointed as a director of Fiducian Group Limited on 1 June 2023. Kerry has held non-executive director and chair roles in the building, infrastructure and aged care sectors, with extensive experience in strategic sales, marketing and R&D at senior executive levels.

Sam Hallab - Non-Executive Director

Sam Hallab has over 35 years’ experience in finance and superannuation. Appointed to the Board in 2016 his expertise in accounting and as a registered company auditor is highly regarded. Sam is also a member of Fiducian’s Audit Risk and Compliance Committee and the Remuneration Committee.

Veritas Securities has released a full research report on FID -

https://hotcopper.com.au/attachments/fiducan_stock_research_-may-2024-pdf.6198252/?filename=Fiducan_Stock_Research_+May+2024.pdf

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.

Fiducian has been a long running, high ROE financial planning business/ fund manager/ platform business which is founder led. Investors have done very well over the long term.

My concern has always been it is all vertically integrated and the conflicts of interests that entails - most Fiducian advisers (salaried of franchisee) would recommend the Fiducian platform and that clients then invest in Fiducian managed funds - not sure how that sits with the 'best interest' obligation. "Show me the incentive and I'll show you the outcome.” - Charlie Munger

That said they escaped the Royal Commission (with which all the recommendations are now being wound back in any case) and they've avoided all the scandals unlike Dixon Advisory which came unstuck with a similar model and now costs the industry thousands in levies.

Given the conflicts wonder what would happen if Indy Singh does retire and what a less ethical manager might do in future.