Thanks. Do you think it is wise to own shares in a FM company? I doubt the industry is going to go away.
Exactly. Most of them are most skilled at marketing. Most fundies don't tend to analyse every stock to death, it's often more about "themes".
If an FM has 70 or 80 stocks in their fund, then it's highly unlikely they are spending 40 hours on a microcap like TGA.
So, what is the key relevant information to be used for making a decision to buy or sell TGA? No more than 5 points please.
For me, these are:
- Very low debt company
- Great RoE as a result of great management
- Recurring profits (~50%)
- A consistent trend of profit growth (although I don't expect this)
- Ability to get their payment from Centrelink, rather than expect it from clients (very important when dealing with finance to sub-prime customers IMO)
And a nice payout ratio to match all of this
PPT is dumping TGA stock, I see.
Thanks. Do you think it is wise to own shares in a FM company? I doubt the industry is going to go away.
Thanks Klogg. To continue this further, where did you find out your information? The low debt, ROE and profit growth can be found from just looking at ft.com or MSN money.
You just have to consider that you are buying a marketing company. Lots of companies do very well with inferior products because they market them well. Personally, unless there is some other competitive advantage, I'd rather stick with companies that have a good product. Look at the difference between Perpetual and Platinum. PTM has ~$6b less in FUM but is more than twice as big as PPT by market cap. They don't spend money trying to get advisers to sell their product and instead let the results do the talking. Of course, Kerr Nelsons are fairly thin on the ground and there's no doubt there's some key man risk in there but I think it's good to illustrate the point.
You just have to consider that you are buying a marketing company. Lots of companies do very well with inferior products because they market them well. Personally, unless there is some other competitive advantage, I'd rather stick with companies that have a good product. Look at the difference between Perpetual and Platinum. PTM has ~$6b less in FUM but is more than twice as big as PPT by market cap. They don't spend money trying to get advisers to sell their product and instead let the results do the talking. Of course, Kerr Nelsons are fairly thin on the ground and there's no doubt there's some key man risk in there but I think it's good to illustrate the point.
Absolutely correct. I'd be careful about investing anywhere in the finance industry at the moment with the FoFA legislation that is going on to protect the consumers/clients. A lot of finance companies are going to struggle with the loss of some commission streams (depending on grandfathering) and also with outlining exactly what they are charging their clients for. Funds Management is also now in the spotlight as people recognise indexing with their super produces the same if not a better return in most circumstanes and possibly holding 'tilts' to the Kerr Nelson's etc. This points to possibly a reduction in FUM to a lot of fund managers and/or they will be forced to reduce fees.
Financial Planning companies which are listed and Fund Managers that are listed who can weather the legislative storm on the horizon will be great companies to be invested in IMO. It's identifying these companies which will be the difficult thing without some insider knowledge. Theres also likely to be a lot of company consolidation as the administrative burden and reduced fees hurt some smaller firms.
Also back to TGA, the 5 points Klogg has referenced are a big part of what encouraged me to buy shares in TGA. Although I was unable to find any reference in recent announcements by the company in relation the recurring revenue. Interested in where you obtained the 50%+ figure from Klogg.
Thanks Kermit. I am bullish on the Fund Management and Financial Planning industry. The reason for my bullish view is the size of the Australian super industry and investors short term memory. 5-10 years down the track the GFC will be long forgotten but there will be trillions of dollars that need to be invested and thousands of investors requiring assistance. Somebody, somewhere will be making money from this. Feel free to PM me if you have ideas or suggestions of FM or Financial Planning companies worth looking at, I only have the internet.
I'll make this my last post on the finance industry. There is great potential with the size of Australian Superannuation funds but don't be so quick to assume this will go to the bottom line of today's companies. The proposed MySuper has the potential to drastically reduce the flow of funds into Fund Managers and Financial Planners in combination with the new Fee For Service models. Financial Planners will be remunerated more and more for their strategic work and not their investment skills earning FUM payments and commissions.
The financial planning and funds management landscape is changing through government legislation so tread very carefully until the legislation is passed and in place. There's a huge potential out there for business consolidation and for the banks to expand on their range of solutions and basically control every aspect of a persons financial position. Due to their scale, even thougwh fees are being compressed my view is the banks can potentially earn mega bucks through scale and providing the whole financial picture for people. Mortgage, Insurance, Savings, Financial Strategies, Investment, Superannuation. You may think they do it all now, but with the administrative burden smaller businesses may feel (depending on legislation) in the next 2-5 years the scale of the banks could become much more. All my view by the way but if you delve deep enough many share my view.
Thanks. Do you think it is wise to own shares in a FM company? I doubt the industry is going to go away.
Curious as to why you would say this? We could certainly do with some alternative opinions to the glowing reviews.On the subject of TGA it annoys the hell out of me that such a mediocre stock receives so much attention.
On the subject of TGA it annoys the hell out of me that such a mediocre stock receives so much attention.
What amazes me looking at TGA's share price touch $1.40 this morning is that a company that reported a 30% rise in net profit for the half year and confirmed net profit for the full year to be about the same can be sold off as heavily as it has been. So much for the efficient market hypothesis!
Forgive my ignorance, but from an FA perspective, if I were to wait for the $1.90 to come about, the stock will no longer be 'underpriced' as my analysis suggests.
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