Centrepoint Alliance (ASX: CAF) is a financial services firm, which earns most of its revenue by providing operational and licensing services to financial advisers. Centrepoint Alliance also has nineteen of its own salaried advisers. Additionally, there is a small boutique mortgage broker aggregator division and lending service. In December 2024 Centrepoint launched Superannuation and investment platform – IconiQ.
Centrepoint has the third highest number of financial advisers under its licence in Australia behind AMP, Count Financial (ASX: CUP), WT Financial (ASX: WTL) and Insignia (ASX: IFL) (previously known as IOOF).
AMP (ASX: AMP) and Insignia (ASX: IFL) have had some negative press over recent years, starting with the Hayne Royal Commission in 2017, and advisor numbers have been generally decreasing. However, according to WealthData, “Centrepoint started 2024 in fifth with 520 advisers and finishing in third spot with 559”.
Centrepoint Alliance is aiming to grow different revenue streams. It acquired Queensland advice firm Financial Advice Matters (FAM) in order to grow its higher-margin salaried advisors segment. It rolled out its inexplicably named new investment platform IconiQ, and it has been growing its managed accounts business. Finally, it is growing its small lending business.
Servicing financial advisers is not a high-growth business, but the revenue growth since CEO John Shuttleworth started in 2021 should continue as advisor numbers grow organically and through acquisitions, which should underpin the already healthy dividend.
FY24 results show continued revenue growth for Centrepoint Alliance (ASX: CAF)
The financial year ending 30 June 2024 saw the fourth straight year of revenue growth, with $288 million of gross revenue, up 6% on FY23. Net revenue of $36.1 million comprised mostly $24 million from adviser fees, salaried advice of $6.2 million, and lending solutions of $1.8 million.
Profit after tax was up 24% to $7.8 million, with the Financial Advice Matters (FAM) acquisition contributing 7 months of trading, and organic licenced fee growth. Expenses were down 2% (excluding the Financial Advice Matters acquisition).
Free Cash Flow (FCF) was $6.8 million, which is calculated by taking net cash flow from operations of $7.2 million minus expenditure on property, plant, and equipment of $403,000. This does not take into account acquisition-related costs.
The fully franked dividend of 1.75 cents per share was paid in October 2024, taking the calender year total to 2.75 cents per share. 2023 saw 3 cents paid, but that included a special dividend due to an asset sale.
Net cash as of 30 June 2024 was $9 million, comprising $12.2 million of gross cash available less $3.2 million of bank debt associated with the FAM acquisition. This should see Centrepoint in a reasonably good position to make small acquisitions and buy adviser books, without needing to raise too much capital or increase debt significantly.
Half year results to December 30th, 2024 will be released on 24th of February 2025
Centrepoint Alliance (ASX: CAF) Advisor Growth
Centrepoint must be doing something right since it gained 39 advisers over calendar year 2024 while many other dealer groups lost advisers. And in the FY 2024 report the company said:
‘Of the top 10 licensee firms in Australia, only 3 had net growth with 7 of the top 10 firms losing over 300 advisers collectively. Centrepoint’s self-licenced business finished the year with 203 firms (825 advisers) which represented growth of 22 new firms over the year.’
Since 2021, Centrepoint has grown advisors (organic and through acquisitions), which should see the cost-to-income ratio fall, as the business scales. The ratio, which measures the costs that are necessary to generate income, has fallen from 88 to 75% since 2021.
The below chart shows growth of combined authorised reps and self-licenced advisers under Centrepoint vs the cost-to-income ratio.
After the Hayne Royal Commission into the financial services industry in 2017-2019 there was a sharp drop in Australia’s financial advisers, and subsequent decline in advisor numbers across the industry. This has stabilised now, and between 2023 and 2024 numbers dropped just 0.93%.
Centrepoint Alliance recently completed the acquisition of Financial Advice Matters which was completed in December 2023. This took the number of salaried advisers from 4 to 19. This is an area Centrepoint Alliance is looking to grow as it is a higher margin than providing services and licensing to advisers.
New Wrap Platform and Managed Portfolios
Centrepoint Alliance partnered with FNZ, (who have a good reputation within the industry) to provide the backend (engine to power the platform) of Centrepoint’s new investment platform – IconiQ. This is prudent as wrap platforms may rebalance thousands of accounts at one time, so a high number of trades at the same time requires a robust engine.
The CEO John Shuttleworth started with Centrepoint in 2021, overseeing steady revenue growth. He was previously responsible for transforming the BT Panorama wrap platform for BT Financial, leaving in 2018. BT Panorama is popular with advisers. Shuttleworth’s good work with BT Panorama will hopefully see the IconiQ platform climb the rankings of preferred platforms.
The 2024 Australian Financial Advice Landscape Report shows the investment platform rankings over the last five years on page 54. This report may also be of interest to investors when researching financial advice/investment platform firms listed on the Australian share market..
Centrepoint launched a new range of managed portfolios in FY2024. As the company is looking to grow its own salaried advisers, having its own platform and managed accounts makes sense, plus these can be marketed to the self-licensed and licensed advisers.
This new range of managed portfolios is now available on the Hub24 (the highest ranked platform by advisers in 2024), and Macquarie investment platforms, with rollout expected on other platforms in the future.
Mortgage Aggregation & Lending as a Service
The mortgage aggregator business presently has only 80 brokers so the tailwinds I wrote about in my recent Australian Finance Group (ASX: AFG) article won’t make much of a difference to revenues, but I like the diversification into mortgage broking. People will always want to talk to a (real) person about the major financial decision of buying a house.
Lending-as-a-Service provides lending services to financial advisors under the Centrepoint licence. The idea is advisers can refer clients to an in-house specialist, ensuring a more holistic service which also helps to retain clients, who would otherwise have to be referred to an outside lender. This segment contributed a small $1.44 million in FY24 revenue, but this was up 22% on FY23.
Risks to the Centrepoint Alliance share price
There is a lot of competition for financial services businesses in Australia, and barriers to entry are not high. In the investment platform space, there are about 14 main providers, and some financial firms are launching their own platforms, which is becoming easier with technological advances.
Platform fees may come down over time, similar to what we have seen with online share brokers, and low-cost share investing platforms that can offer other services (and low-cost ETFs) coupled with changing technology may see the younger generation question if they need to be paying an advisor, and all kinds of platform fees.
There is also the possibility that the new managed accounts won’t gain much traction as there are plenty of managed accounts being offered by firms, and for many clients it is hard to differentiate managed portfolios.
Growth over the group’s segments will not be rapid due to the nature of the business, and while adviser numbers in the industry have stabilised in recent years, they are not growing, and may not in the future. Centrepoint Alliance is gaining advisers organically, but management have said they will also look to grow advisers by acquisition. This opens up the risk acquisitions don’t work out as planned, and capital may need to be raised, or debt taken on.
Does the Centrepoint Alliance share price offer value?
The trailing grossed-up dividend yield of 12.5% and the trailing Price to Earnings (P/E) ratio is around 9, indicating the market has low expectations of the business. It is an under-the-radar company with no brokers I can see following, probably due to the small market cap of $62 million, and being a low-growth business.
There have been no director on-market trades over the last year and directors don’t own a lot of shares. One director has a small holding of 31,189 shares, one with a moderate holding of 180,000 shares, and another with a larger holding of 969,191 shares.
I prefer to invest in businesses with faster growth and the possibility of asymmetric returns, I think Centrepoint’s generous dividend payments can be a useful source of income. Personally, I try to have a mixture of small-cap dividend shares, fast growers, potential asymmetric returns plays, and the odd mid-cap in my portfolio.
I like to think about what will not change in the future when looking at potential investments. In this case it is human nature. I believe talking to a real person about life savings or a first home purchase will always be a preferred option for many. Plus, many people will always find investments and financial affairs boring and complicated and, therefore, prefer to outsource this to someone else.
I (Chris Coe) recently took a position in Centrepoint Alliance, as I am happy with the current CEO and how the business has performed since 2021. I hope the direction Centrepoint Alliance is taking by diversifying revenue, focusing on the higher margin business of having salaried advisers, launching the investment platform, and growth in the lending service, should see steady profit and dividend growth in the coming years.
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Disclosure: The author of this article Chris Coe owns shares in CAF. The editor of this article Claude Walker does not own shares in CAF. Neither the author nor the editor will trade CAF shares for at least 48 hours following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 343937).
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