Fiducian Group strong underlying cash flow continues to fund business growth

About Fiducian Group Limited

Fiducian Group Limited (Fiducian, the Group, ASX: FID), is an ASX-listed financial services business that has operated for the past 28 years. The Group’s operating divisions cover financial planning, investment funds management, superannuation, investment platform administration and information technology solutions.

Strong underlying cash flow

Fiducian is one of the few businesses that is prepared to lodge a quarterly cash flow report with the ASX, despite not being required to do so. The ASX requires quarterly cash flow reports where an ASX-listed entity’s cash flow position appears to the ASX to be critical for the listed entity to achieve its stated business objectives. This is not the case with an established business like Fiducian. The requirement to lodge quarterly cash flow reports typically applies to mining companies with operations still at the exploration phase that have not progressed to the production phase. It also applies to ‘start-ups’ until cash flow begins to emerge and where the business can generate sufficient cash to fund its stated objectives. However, Fiducian’s added transparency and voluntary quarterly disclosures are well received by shareholders and the market more generally.

Accordingly, it would be no surprise that Fiducian is a strong cash flow business and has a high cash conversion ratio. The cash conversion ratio is the ratio of cash flow of a business to its net profit. The ratio is a measure of cash-backed earnings. A cash conversion ratio of one or more is rare because cash flow tends to lag profit, in that profit includes accrued income earned, but not received.

A business with a cash conversion ratio of one or above is almost certain to have minimal or no debt, because asset growth can be funded from internally generated cash flow, without the need to rely on banks for funding. Strong cash flow businesses tend to have higher dividend payout ratios than other companies.

In the June 2023 financial year, Fiducian recorded a statutory net profit after tax of $12.3 million, and operating cash flow of $14.3 million, being a cash conversion ratio of 1.16. In the same year Fiducian paid shareholder dividends of $8.6 million, representing a pay-out ratio of 70 percent. Unsurprisingly, at 30 June 2023 Fiducian had no debt and cash of $19.6 million. This cash amount represents 40 percent of shareholders’ equity at 30 June 2023.

Share market is a key driver of Group asset growth

Fiducian’s core business products are Platform Administration, Funds Management and Financial Planning. Funds Under Management Advice and Administration (FUMAA) increased from $10.9 billion to $12.3 billion during the 2023 financial year. This funds flow was assisted by higher share market returns which is the primary earnings driver for the Group.

The board’s stated aim is to leverage Fiducian’s FUMAA processing capability to build scale and delver consistent double-digit earnings growth in coming years. The Group’s half-year results and financial report are due to be released later this month and recent share market strength should support favourable outlook commentary from management at this time.