The Australian Ethical (ASX:AEF) share price slips after earnings update

The Australian Ethical (ASX: AEF) share price has doubled year-to-date. Does today's update align with its surging share price?

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The Australian Ethical Investment Ltd (ASX: AEF) share price has fallen in opening trade today after the company announced an earnings guidance and business update for FY21.

At the time of writing, the Australian Ethical share price is trading at $9.60, down 2%.

A male ASX investor wearing glasses and a beanie and denim shirt puts his hand to his chin wondering whether to buy ASX shares

Image source: Getty Images

What might move the Australian Ethical share price today?

Earnings guidance for FY21

In today's release, the wealth management company advised it expected to deliver an underlying profit after tax before performance fees for the year ending 30 June 2021 between $8.8 million and $9.3 million. This compares to the $7 million full-year underlying profit after tax delivered in FY20 on an equivalent basis. The expected profits for FY21 represent an increase between 25.7% and 32.8%.

Australian Ethical has seen a solid increase in funds under management (FUM), with $5.68 billion as at 30 April 2021. This represents a 5% increase from the $5.41 billion in March this year, and a 40% increase from 30 June 2020.

The company said that increases in April was driven by $0.17 billion in investment performances and continued solid netflows of $0.1 billion.

Australian Ethical highlighted its commitment to making ethical investing as accessible as possible for all Australians, and advised that it will reduce fees across targeted super options and managed fund products from 1 June 2021 onwards.

From a revenue perspective, the reductions will reduce the average revenue margin by approximately 0.04% pa. The company's revenue margin at 31 December 2020 was 1.05% pa. Despite the margin reductions, the company believes it could improve the competitiveness of its products and contribute to long-term growth in FUM.

Business update

The company said it was seeing "great momentum" as its strategy delivered a number of positive outcomes in terms of FUM growth, investment performance and other key performance indicators. Its strong business performance could be a catalyst behind the 100% year-to-date surge in the Australian Ethical share price.

Its business update observed continued strong investment returns with its Australian Shares super option ranked first over 1 year, 5, 7 and 10 years. Its Australian Shares Fund and Emerging Companies Fund have delivered above benchmark returns, returning 15.1% and 18.6% above their benchmarks respectively.

Another area of growth for Australian Ethical is its adviser channel, which saw flows up 177% on the same period last year, reaching a significant milestone of $1 billion in advised FUM.

Outlook

The Australian Ethical share price has outperformed the broader market and is standing strong against recent market volatility.

Australian Ethical CEO John McMurdo commented:.

We are seeing unprecedented interest and demand for ethical investing as Australians open their eyes to how our products deliver attractive investment returns and make a positive difference in the world. Looking ahead, we expect this growth in ethical investing to accelerate

Mr McMurdo said the company was already reaping the benefits of strategic investments to strengthen its operating platform, diversify acquisition channels and improve customer experience.

We recognise the opportunity to extend our market leadership position through future investment in deepening our investment expertise, brand and marketing to improve brand awareness, technology to enhance customer experience and expanding our product offering to meet demand and further our positive impact.

In the medium to longer term, we expect higher levels of profitability as we realise the anticipated benefits of investing in our business and operating leverage from achieving greater scale.

Kerry Sun 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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