How the Fiducian Group Ltd outperformed the ASX by 391%

Find out this simple but effective strategy that has led to the Fiducian Group Ltd (ASX: ]FID) delivering double digit EPS growth in 14 out of the last 18 years.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Since June 2012, the Fiducian Group Ltd (ASX: FID) has outperformed the ASX by 391% with a total return of 475% compared to the ASX All Ordinaries total return of 84% over the same period. It has delivered double-digit EPS growth in 14 out of the last 18 years.

That's a staggering performance as the small cap stock takes on industry heavyweights such as IOOF Holdings Limited (ASX: IFL).

Continuing on its growth trajectory, the Fiducian Group recently released its HY 18 results. Here are the highlights:

  • Revenue was up 12% to $20 million
  • Net profit was up 26% to $3.4 million
  • Funds under Management, Administration and Advice (FUMAA) were up 63% from $3.8 billion in December 2014 to $6.27 billion in December 2017.

How has this small company outperformed the ASX and can it keep doing it?

Management has a simple but effective strategy to achieve this:

  • Fiducian grows funds under advice organically and through strategic acquisitions of financial planning businesses.
  • When funds under advice grow, this creates cross selling opportunities to drive these funds through Fiducian Group's platforms (thereby increasing funds under admin) and fund managers (thereby increasing funds under management).
  • The growth in overall FUMAA increases 3 revenue streams as the funds go through the entire value chain
  • Most of Fiducian Group's costs are fixed at roughly $11 million and so as increases in FUMAA drive revenue growth, the bulk of this growth goes straight to the bottom line. As such, management extrapolate that if FUMAA went up by 59% from the current $6.27 billion to $10 billion, EBITDA would go up by a staggering 257% from $7 million to approximately $25 million.

In my view, there are a couple of risks to this strategy:

  • Firstly, there is a strong reliance on management's capabilities to keep making smart acquisitions. Fiducian has a policy of not disclosing the names of the financial planners who join their business and so it's difficult for the market to perform its own due diligence on new acquisitions.
  • If the overall market crashes, Fiducian's FUMAA will crash as well and so will Fiducian's revenue.

Overall, I do think there is some exciting growth ahead for Fiducian but investors might need to temper their expectations of consistent double digit earnings growth.

Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned. You can follow Kevin on Twitter @KevinGandiya. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »