An 8.7% fully franked gross yield, with a strategy to drive a rerating

On first glance Bell Financial Group’s (ASX: BFG) latest half-year result looks underwhelming. Revenue fell 12% to $121 million and profit slid 44% to just over $9 million. But the headline numbers mask what CEO Arnie Selvarajah sees as the bigger story, a company deliberately shifting away from the volatility of traditional stockbroking towards a more stable and scalable wealth management model.

“Our revenue was $121 million, down 12% on the same time last year, and our profit was just over $9 million, down 44%. A big driver of that was the strength of ECM in the prior year,” Selvarajah explained.

The broking division, still highly geared to market conditions, weighed on the result. Activity was particularly muted around April’s “Liberation Day” volatility and broader geopolitical uncertainty. But while broking stumbled, Bell Financial Group’s Technology & Platforms and Products & Services divisions delivered, together accounting for 38% of revenue and more than 100% of profit.

Changing the revenue mix

The contrast highlights Bell Financial Group’s longer-term strategy, to reduce dependence on cyclical equity capital markets and transactional broking, and instead build recurring, annuity-like revenue streams.

The platforms arm, home to brands such as Bell Direct and Desktop Broker, now services around 190,000 clients with $43 billion in client assets. Products and services, which includes cash solutions, margin lending and portfolio administration, is growing steadily, up 17% half-on-half.

Selvarajah sees these businesses as crucial for smoothing earnings.

“These two businesses create a floor of earnings for the group. They were 100% of our net profit in the half. Over time, the volatility from broking will become a smaller and smaller component of the whole.”

The challenge, of course, is scale. While growth has been consistent, competition in the online trading and wealth solutions space is intense. Which is why M&A remains on the radar. Bell Financial Group’s tilt at SelfWealth earlier this year, while unsuccessful, will not be the last.

“We own all our own technology, client-facing websites, CRM, and a trading engine that connects directly with the ASX. That gives us real leverage to scale. We will keep looking for acquisitions, but only where they are incremental and accretive.”

A platform for growth

The most important shift is Bell Financial Group’s ambition to evolve into a holistic wealth management business. The recently announced partnership with Praemium (ASX: PPS) gives Bell Financial Group the ability to scale its offering well beyond equities.

Currently, Bell Financial Group has about $6 billion of assets on its internal portfolio administration service. Selvarajah says the Praemium partnership will enable them to make it more automated and scalable.

“We know a third of our clients have 50% or more of their portfolio with somebody else. The Praemium platform means we can address that gap. Our addressable market goes from $45 billion of client assets today to about $80 billion.”

The goal is ambitious, to lift penetration of Bell Financial Group’s own products from 10% of client assets today to 20–30% over the next two to three years. On the revenue front, the mix is currently 20% recurring versus 80% transactional. Within three years, Selvarajah wants that closer to 50:50.

“On the existing platform we have been growing by about half a billion dollars a year. With scale, I think we can double that quite easily.”

Breaking down the silos

Underlying the strategy is a simple idea, investors do not see themselves as “broking” or “advice” clients. They just want to grow wealth.

“Clients do not wake up in the morning and say, I am an advice client or I am a self-directed client. They just want to build wealth. What we are doing is breaking down the silos. All our clients sit on one technology platform, so moving between self-directed and advised will become frictionless.”

It is a vision that reflects the direction of the industry globally, blending advice, platforms, and products into a single, scalable solution that adapts to different stages of an investor’s life.

A stock with income and optionality

For now, investors are paid to wait. Bell Financial Group holds a strong cash position and declared a dividend that equates to an 8.7–9% grossed-up yield at current prices. That income, Selvarajah argues, comes with growth optionality.

“At the moment, we are valued more like a traditional broker, about 13 times NPAT. But parts of our business should be valued like annuity-style businesses. We think there is a tipping point coming. In the meantime, you are being paid close to 9% to wait.”

Value now, growth on the horizon

Bell Financial Group’s latest result shows the pressures of a cyclical market. But beneath the surface is a clear plan, shift from transactional broking towards annuity-style wealth management, leverage strong existing client relationships, and expand into new asset classes.

Execution will not be easy in a competitive market. But with stable cash flows, a high dividend yield, and a pathway to a rerating, Selvarajah believes Bell Financial Group can deliver both income and growth.

“It is a stock where you can have your cake and eat it too, a strong yield now, and capital growth when the model tips.”