3 reasons why the Australian Ethical (ASX:AEF) share price could be a standout idea

Australian Ethical might be a compelling business to consider.

| More on:
rising asx share price represented by stack of coins with green shoots on top

Image source: Getty Images

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

The Australian Ethical Investment Limited (ASX: AEF) share price could be an interesting one to consider because of a few different reasons.

This business is a fund manager that looks to provide people with the ability to invest in a way that aligns with their ethics. It's looking to avoid companies that are harming the world and find ones that are positively changing the world. Things like fossil fuels and tobacco are sectors it doesn't invest in.

It has been investing ethically, and only ethically, since 1986.

Here are three reasons to consider the business:

Ethical investing is a fast-growing trend

A fund manager's profit is largely influenced by the amount of its funds under management (FUM). There is a growing number of people that are putting their money towards investing ethically.

In FY21, Australian Ethical's funded customer numbers increased by 23%. People are regularly adding to their investment funds and superannuation funds as well.

In the last financial year, Australian Ethical experienced net inflows of $1.03 billion, which was 56% higher than the prior corresponding year. This helped group FUM rise by 50% to $6.07 billion.

The company says it's one of the fastest growing superannuation funds in the country, by both the number of members and funds under management.

John McMurdo, the Australian Ethical CEO, said with the release of the FY21 result:

Despite the ongoing challenges posed by the pandemic, it has been a pivotal year for ethical investing, climate pledges and sustainable commitments around the world. As the coronavirus continues to reshape economies and global markets, a near-universal desire for a more sustainable future is emerging.

As a result, our ethical approach is rapidly gaining popularity for its inherent tilt towards quality, resilience and long-term capital appreciation. Over the past 12 months, we've seen record net flows into our award-winning products, buoyed by excellent investment performance and a growing awareness among Australians of the power of their money in driving climate action.

The ongoing growth of customers and FUM could help profit and the Australian Ethical share price.

Profit growth

The company is already delivering sizeable double digit increases to profit.

In FY21, the business achieved operating revenue growth of 18% to $58.7 million, whilst underlying profit after tax grew 19% to $11.1 million.

Excluding the performance fees it generated, operating revenue grew by 21% and underlying net profit after tax went up by 30%.

This profit growth was achieved despite the business continuing to invest in its brand, investment expertise, distribution channels, customer experience and in delivering strategic and regulatory initiatives.

Fund managers can be very scalable businesses because of how capital light they are. Australian Ethical is planning to reduce its fees for investors, which it hopes will make its offering more attractive.

Positive outlook

Management believe the business is well positioned for the future, with no debt, strong cashflows and positive momentum. However, it will continue to fight to safeguard and grow its market share.

In the short-term, it wants to deepen its investment capability, expand its product offering, grow its brand awareness, fully digitise, upgrade the customer experience and significantly expand its newer customer segments. Over the longer-term, it believes these short-term areas will cement its leadership while allowing it to leverage the scale of the business to grow profit.

Mr McMurdo has said:

We are embarking on an aggressive growth strategy that reinforces our existing market share and expands it where we see the most potential. Our goal is to build a much bigger, more impactful business and we will be investing heavily in our existing business to achieve this ambition.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended 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.

More on Growth Shares

a happy investor with a wide smile points to a graph that shows an upward trending share price
Growth Shares

Here are the top five ASX 200 shares in Macquarie's model growth portfolio

These ASX 200 shares are highly rated by analysts at Macquarie.

Read more »

a man with a wide, eager smile on his face holds up three fingers.
Growth Shares

3 ASX shares to buy in 2024 and hold for the next 10 years

Analysts think these top shares are in the buy zone right now.

Read more »

A man leans forward over his phone in his hands with a satisfied smirk on his face although he has just learned something pleasing or received some satisfying news.
Growth Shares

4 ASX growth shares I think will benefit from interest rate cuts in 2024

Not only will home loan holders rejoice, investors of these stocks could also be yelling with joy when the Reserve…

Read more »

A smiling woman sits in a cafe reading a story on her phone about Rio Tinto and drinking a coffee with a laptop open in front of her.
Growth Shares

3 of the best ASX growth shares to buy now

Analysts see plenty of upside for these buy-rated shares.

Read more »

A man and woman in an office look at a laptop and discuss investing, budget strategies or other financial concepts
Growth Shares

Here's why analysts love these buy-rated ASX 200 growth shares

There's a reason analysts are feeling bullish about these companies.

Read more »

A woman with strawberry blonde hair has a huge smile on her face and fist pumps the air having seen good news on her phone.
Growth Shares

Big returns could be coming for high-flying Lovisa shares

Morgans doesn't believe it is too late to snap up this hot stock.

Read more »

Smiling young parents with their daughter dream of success.
Growth Shares

Why these ASX 200 growth shares could be top buys now

Analysts are feeling bullish about these growth stocks. Let’s see what they’re saying.

Read more »

Concept image of a man in a suit with his chest on fire.
Growth Shares

Ignore the noise and buy this hot ASX growth stock

A recent pullback may have created a buying opportunity according to Bell Potter.

Read more »