##{"id":60083,"date":"2012-06-12T15:10:00","date_gmt":"2012-06-12T05:10:00","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/06\/12\/sfg-australia-offers-upside-plus-yield\/"},"modified":"2012-06-12T15:10:00","modified_gmt":"2012-06-12T05:10:00","slug":"sfg-australia-offers-upside-plus-yield","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/06\/12\/sfg-australia-offers-upside-plus-yield\/","title":{"rendered":"SFG Australia Offers Upside Plus Yield"},"content":{"rendered":"

\n\t – SFG<\/span> Australia is an independent wealth management company
\n\t – Group's focus is on high net worth clients
\n\t – Moelis<\/span> sees upside longer-term, plus an attractive yield<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tSFG<\/span> Australia ((SFW<\/span>)) is a vertically integrated wealth management company, offering an alternative independent operation to major banks and industry funds. The company was formed via the merger of the Shadforths<\/span> advisory business and Snowball Group in June of last year.<\/p>\n

\n\tSFG's<\/span> focus is on high net wealth clients with an average of $800,0000 invested. As Moelis<\/span> notes, this focus has resulted in funds under advice of more than $10 billion. This offers good scale in the view of Moelis<\/span>, as well as delivering a level of client stickiness and good cross selling opportunities from new products and services.<\/p>\n

\n\tMost of SFG<\/span> Australia's advisors are salaried under the Shadforth<\/span> brand, while the group also offers affiliate and B2B<\/span> (business to business) advice models through the Western Pacific and Actuate brands. Moelis<\/span> notes around 80% of SFG<\/span> Australia's revenues are generated from asset based fees. <\/p>\n

\n\tWhile this suggests little risk to funds under management based fee structures as client assets grow via inflows, the current stockmarket<\/span> volatility does present a risk to revenues and earnings.<\/p>\n

\n\tHelping to offset this is the potential for industry consolidation opportunities, as Moelis<\/span> suggests the costs and regulatory risks associated with FOFA<\/span> (Future of Financial Advice) reforms will make many smaller operations unprofitable.<\/p>\n

\n\tLooking forward, Moelis<\/span> is forecasting earnings per share (EPS) for SFG<\/span> Australia of 3.8c this year, rising to 4.4c in FY13<\/span>. While downside risks are modest within the currently volatile operating environment, Moelis<\/span> sees growth prospects underpinned by integration synergies and upside potential from bolt-on acquisitions.<\/p>\n

\n\tThis leads Moelis<\/span> to suggest the current earnings multiple of around nine times for FY12<\/span> is undemanding, especially as the strong cash flow attributes of the wealth management sector will support an attractive dividend payout ratio. <\/p>\n

\n\tMoelis<\/span> expects dividends of 2.2c this year and 2.6c in FY13<\/span>, which translates to fully franked yields of 6.6% for FY12<\/span> and 7.8% for FY13<\/span>. Factoring this in, Moelis<\/span> rates SFG<\/span> Australia as a Buy, with a price target of $0.40. <\/p>\n

\n\tMoelis<\/span> adds to what is sparse coverage on SFG<\/span> Australia, which reflects a market capitalisation<\/span> of around $250 million. The FNArena<\/span> database shows only BA Merrill Lynch researches the company and has a Buy rating and $0.47 price target on the stock.<\/p>\n

\n\tShares in SFG<\/span> Australia today are slightly weaker in a stronger market and as at 12.30pm the stock was down 0.5c at $0.335. Over the past year the stock has traded in a range of $0.31 to $0.37.<\/p>\n

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