A Small Cap Primed For Growth

Ron Shamgar

Prime Financial Group (PFG) is an integrated wealth management and accounting services business. PFG provides a range of services from financial planning, investment advice, accounting and insurance. PFG has over $1.1B of FUM now and services over 40,000 clients nationally through its directly owned accounting practices or through its joint ventures. The company has been around for 18 years and is led by the MD, Simon Madder, who owns 14% of the equity.

PFG is an acquisitive company and has over the years acquired minority interests in its joint venture accounting partner groups. More recently the company has shifted its strategy to consolidate these minority holdings and fully acquire high performing and strategic wealth and accounting firms. We believe this strategy will help simplify the company’s financial reporting and help investors better value the business going forward.

In mid June PFG updated the market that FY2017 NPAT will grow by 23% – 30% on underlying FY2016 to $3.4M - $3.6M or approximately 1.85 cents EPS. (FY17 actual profit came in at the top end of the range) Final dividend is also set to increase to a full year dividend yield of circa 5% fully franked. What’s more pleasing is the strong growth in FUM over the period which is a lead indicator to further earnings growth in FY2018. We also expect that the recent acquisitions of 100% of MPR Group and Altezza Partners accounting businesses, will further add to next year’s revenue and earnings growth.

PFG ticks many of the boxes of the kind of business we look to invest in at the TBF Small Cap Value Growth Fund:

  • A company that has undergone a strategic shift and is now growing strongly.
  • Management and board with large equity ownership.
  • 80% recurring revenue base.
  • A business that generates cash and has low capex requirements.
  • A sector with positive tailwinds.
  • No research coverage yet.
  • And finally significantly undervalued.

TBF estimates that PFG will earn between 2.2 cents to 2.4 cents EPS in FY2018 placing the stock on PER multiple of circa 8x and a fully franked yield of 5%. Comparable peers such as Kelly Partners (KPG), Easton Investments (EAS), Centerpoint Alliance (CAF) all trade on PER multiples of 15-20x. We value PFG at 34 cents.


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