Here’s why the Australian Ethical (ASX:AEF) share price is crashing 10% lower

The Australian Ethical Investment Limited (ASX:AEF) share price is under pressure on Wednesday following the release of its half year results…

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It has been a disappointing day for the Australian Ethical Investment Limited (ASX: AEF) share price.

In afternoon trade, the fund manager’s shares are down a sizeable 10% to $6.45.

Why is the Australian Ethical share price tumbling lower?

The catalyst for the decline in the Australian Ethical share price on Wednesday has been the release of its half year results.

For the six months ended 31 December, the company reported a 10% increase in operating revenues to $25.6 million.

This was driven by its positive investment performance, strong growth in new customers, and record net inflows. This was partially offset by superannuation fee reductions and fee and threshold reductions across some managed funds.

The company’s operating expenses grew quicker than its revenue and were up 11% to $18.9 million. Management advised that this was due to its investment in its brand, distribution capabilities, operational platform, customer experience, and strategic initiatives and regulatory projects.

This ultimately led to Australian Ethical reporting an underlying profit after tax of $4.9 million for the half. This was up 11% on the prior corresponding period.

Thanks to this profit growth, the company’s board was able to declare a fully franked interim dividend of 3 cents per share. This is an increase of 20% on the previous year.

How does this compare to expectations?

Although its profit result was in line with its guidance range of $4.6 million to $5.1 million, judging by the Australian Ethical share price performance today, it appears as though investors were expecting an even stronger profit.

What else is weighing on the Australian Ethical share price?

In addition to this, management’s outlook for the remainder of FY 2021 could be weighing on the Australian Ethical share price.

Management advised that it expects higher operating expenses in the second half.

Australian Ethical’s CEO, John McMurdo, commented: “The second half of the financial year will be impacted by higher operating expenses, due to timing of expenditure, as well as increased investment in capability, strategic initiatives and regulatory projects as we continue to position our business for success.”

The chief executive also revealed that it would be lowering its fees.

“Looking forward, as part of our fee strategy, we will continue to reduce fees as we grow, to increase our competitiveness, and pass on benefits to our customers,” he added.

The company also confirmed that any performance fee on the Emerging Companies Fund will only crystallise on 30 June 2021. This is if the fund outperforms the Small Industrials Index benchmark. This fee is calculated at 20% of the outperformance.

Despite today’s decline, the Australian Ethical share price is still up a sizeable 31% in 2021.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Australian Ethical Investment Ltd. The Motley Fool Australia has recommended Australian Ethical Investment Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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