Listed advice companies masking indifferent financial performance

Mike Taylor

Managing Editor and Publisher

8 March 2023

The Financial Newswire analysis team has looked at the latest financial reports of Australia’s listed financial planning providers and found that spin is often masking harsh reality.

Charlie Munger famously once said “I think that, every time you see the term EBITDA, you should substitute the words “bullsh*t earnings.”

Looking at the half year results for the various listed advice companies we can include the word “adjusted” in this reference to “bullsh*t earnings”. Various companies have “adjusted” for a lot of things to mask what has been poor performance. The words “transformation”, “strategy” and “challenging environment” have been used more than once by these companies. They are trying to hide what is in plain sight – they are sub-scale and need to merge or be acquired to unlock shareholder value.

Ignoring EBITDA, and adjusted earnings, there is one number that counts and that is NPAT attributable to shareholders.

Of the listed entities only CountPlus recorded a loss for the first half, regardless of the moves by the new CEO Hugh Humphrey to impair the value of Wealth Axis the trading performance was poor with operating profit down 51% on the back of higher wages and overheads. The share price remains under pressure even after the Board initiated a buy-back six months ago and there has been no meaningful acquisitions or growth. In an analyst report by E&P it was mooted CountPlus is now vulnerable to takeover with the CBA announcing to the market on several occasions it is a seller of its 36% stake.

Clime just squeezed out a profit after its operating profit fell by 85% to $42,171 and it was fortunate not to lose money after booking gains on investments. The previous market updates pointing to growth in adviser numbers and overall growth strategies have not eventuated.

CentrePoint has benefited from the acquisition of Matrix but is still behind the mooted merger benefits put to the market on acquisition, as with these things they always take more time and cost more money than planned. WT Financial had some wins from the recent acquisition of Sentry and Synchron.

With HUB a significant holder of Diverger, CBA a significant holder of CountPlus, and Clearview and Thorney key players at CentrePoint it is only a matter of time before something happens to one of these players to unlock shareholder value.

It is still difficult to see a pathway to profitability for Insignia and AMP in their own advice businesses.

Looking at the larger private players accounts lodged with ASIC we can see that for the YE2022 Fortnum achieved NPAT attributable to owners of $286,454 an improvement on the prior year loss of ($821,235) with things improving since raising just over $1.0M from shareholders in the previous year.

In recent times AZ Next Generation Advisory has lodged accounts with ASIC for a 31 December 2021 year end. The business shows a doubling of NPAT to owners of $8.668M up from $4.427M the previous period on the back of revenue of $116.77M. Some $50M of debt against a $60M limit is being carried, secured by a standby letter of credit from the Italian parent company. When we look at the goodwill at cost and the carrying value of customer relationships acquired we can see some $292.780M has been spent over the years building this business. With the profit achieved this represents a circa 3% return on goodwill acquired (after amortisation).

The numbers speak for themselves, as Financial Newswire has been writing for some time, there is a need for significant consolidation to take place in this space.