Sequoia Financial Group (ASX:SEQ) Annual General Meeting, November 2021


Sequoia Financial Group Limited (ASX:SEQ) Non-Executive Chairman John Larsen and CEO Garry Crole present at the 2021 annual general meeting.

John Larsen: On behalf of the board, it is my pleasure to welcome you to the 2021 Annual General Meeting of Sequoia Financial Group Limited. Thank you for your attendance this morning via our teleconference facility. I am John Larsen, chairman of Sequoia. In the rare event that I encounter technology problems, I will hand the meeting over to our CEO, Garry Crole. I well then rejoin via telephone for the remainder of the meeting.

Allow me to begin by introducing those present on the call today. My fellow board members being Garry Crole, the company’s executive officer and managing director, Charles Sweeney, non-executive director, and Kevin Pattison, non-executive director, Lizzie Tan, the company’s chief financial officer, and Rebecca Weir, our company secretary. Also in attendance today are the company’s auditors, William Buck, represented by Nicholas Benbow, the partner responsible for the company’s audit for the financial year end of 3rd of June, 2021. I also welcome Steuart Roe, representative of the company’s share registry, Registry Direct.

It is now past 10:30 AM, and I am advised that we have a quorum present. I now declare the meeting open.

The notice for this annual general meeting was sent to shareholders within the required period, and copies of the notice are available electronically via the ASX announcements platform. If there are no objections, I would like to move that the notice be taken as read. I would like to describe the voting procedures that would apply to this meeting. In accordance with my right as chairman of the meeting, and as recommended by the Australian Securities & Investments Commission, I have determined that the votes on each resolution will be taken by way of poll. The results of the poll will be notified to the ASX following the meeting.

The notice of the meeting provides instructions on how to vote. In summary, only Sequoia Financial Group Limited shareholder or their duly appointed representatives or proxies are eligible to vote at this meeting. Shareholders who wish to vote during the meeting must log onto the Registry Direct portal at registrydirect.com.au. Once logged in, go to the meeting menu item and select this meeting for the holding you wish to vote on. You will then need to enter an attendance verification code. The attendance verification code for this meeting is Vote21 with a capital V. I repeat, Vote21, which should be on your screen now.

Vote by clicking for, against, or abstain for each resolution. Once you are happy with the selections, click the submit now button. If you have multiple holdings, you’ll need to repeat this process for each holding. Proxy holders who wish to vote must complete the online proxy voting card supplied to you. If you don’t have access to an online proxy voting card, or have a question regarding completing the online proxy voting card, please call our helpline on 1-300-55-6635. I’ll repeat that. 1-300-55-6635. Proxy holders must also enter the attendance verification code.

If you’re a proxy holder, you must complete with the direction of the shareholder that appointed you to lodge a valid vote. If a shareholder for a proxy holder votes today in relation to a shareholding for which a voting direction has already been provided, the early direction will be revoked in favor of the new vote. Do any shareholders or proxy holders have any queries regarding accessing the Registry Direct voting portal? To ask a question, please use the Q&A function within the Zoom meeting. If you wish to prefer and ask a question verbally, please use the raise the hand function. Any questions, Steuart? No.

Steuart Roe: There are no questions.

John Larsen: I will now move to my chairman’s address. A copy of my address and the following presentation from Garry Crole has been launched with ASX and will be published in the investor section of the company’s website. At last year’s AGM, I expressed the hope we would be able to share a coffee and a snack with our shareholders in the 2021 Annual General Meeting. However, COVID-19 has caused us to adapt new ways of doing things, and COVID-19 restrictions across Australia have continued to impact business in Australia for far longer than any of us had initially envisaged. We have now taken steps to ensure we have a hosting platform that is secure and there are no issues regarding reception and ability to ask questions and engage with your board, albeit virtually. All the meeting materials are available on the ASX announcements platform and will also be on the investor section of the company’s website immediately after the conclusion of this meeting.

In a moment, I will pass you over to our CEO, Garry Crole, to provide a short overview of the 2021 financial year, along with the operational update of our progress over the first few months of the current financial year. We will then move to the formal business of the meeting and the resolutions for your consideration. Before I do, I would like to make some brief commentary about the company’s progress since our last Annual General Meeting.

At last year’s AGM, the company’s share price was approximately 45 cents, and we expressed a view. The board felt the company was undervalued, based on the 2021 budget, to achieve a 20 per cent jump in revenue to a $100 million and a 25 per cent jump in EBITDA to $6.4 million. From this aim to pay, about 30 per cent of a net profit after tax as the 40 year’s dividend. Pleasingly, we exceeded these numbers by a significant margin, with revenues for full year 2021, ending the year up 37 per cent to 116.4 million, an EBITDA of 138 per cent to 11.5 million.

Today, our share price is approximately 70 cents, and we continue to believe the company is undervalued compared to our market peers. We are confident that we can achieve and exceed our EBITDA target growth of 15 per cent set for financial year 2022. The company remains a small business in terms of market capitalisation, and we are focused on investing for growth and expect future growth to come from a mix of organic and acquisitional activities. We are particularly looking to increase our number of services we provide via accountants and aligned businesses who can serve a community, whether it appears to an emerging shortage of advisors able to serve the demand for such services. I would now like to pass you over to Garry Crole, who will provide shareholders with an overview of where we see our business today and in the coming years. Garry?

Garry Crole: I’d like to just point to the disclaimer first that we have, if we could, Steuart. All companies talk to the disclaimer, but I particularly want to talk to this particular disclaimer because of who we are. The financial advice industry, as John pointed out, has seen the number of advisors in the industry shrink and the need for services increase. This particular disclaimer is the same as all disclaimers, but what it talks about is this meeting is general advice in nature and is not taking into account anybody’s personal circumstances, so, therefore, you can’t rely on the content to make a financial decision.

But my point here is that the Australian public need the financial advice community to understand their personal situations and go through a process with confidence so that the advice they are getting on a personal nature is suitable to them. The Royal Commission that happened several years ago has been very, very positive for the industry and those advisors that remain. What we are clearly seeing is an increase in demand for high-quality advice that is personal in nature, that understands the need for no conflict, and understands the need for the advisor being highly qualified and acting in the best interest of every single client.

I apologise for going too long on the disclaimer, but I think it’s very important. It talks to who we are, and it talks to the opportunity that there is in financial services advice across the community. I think your company is well positioned to take advantage of that. I’ll go back to slide one and talk about what my agenda is today in respect to an update. I’m sure all shareholders have read the financial results; they’ve been out for quite some time. But I want to touch on them in a broad sense, and talk about the financial metrics of the last three years.

I do want to confirm off the forecast that we had provided the market a few months ago, where we said we’re looking to increase revenue and then have our EBITDA flow from that at least 15 per cent. So we are expecting revenue to be more than 15 per cent, and, as a result of that, we expect EBITDA to follow it and possibly outperform that target. Saying that, I would like to make the statement that we are a growth company, and we are investing, and we are looking to maximise the opportunity in the very long term. So, whilst short-term results are important, it is the long-term game that we are thinking about. I’ve talked about this before when presenting: we are the tortoise, not the hare, and we are thinking very long term in respect to our financial performance.

We do have a goal, which we set in 2019, to be a business with $400 million of revenue and generating an 8 per cent on that revenue. So we’re talking about looking to be a business with EBIDA, come 2024, of 30-odd million, with 400 million revenue. That process, from my perspective, is a slow-but-steady process, having numerous businesses making small, ongoing, and improving contributions to the consolidated results rather than having one star or two stars in the business. It’s really a combined strategy, where each one of the components makes an instrumental contribution to the group revenue, and work alongside each other, and provide one strategy. And that is providing services to the broader community, whether it be advice, an AFSL, right across the board.

In the update, I’ll also talk about the business performance in respect to full year ’22. I’ll just touch on that; I won’t go too far in details. Obviously, you’ll see the results come December 31, but we’ll give you a bit of an update to where we’re tracking. We’re positive about that, and we are excited, but I’ll make the point: we are investing long term and we are thinking long term, so occasionally revenue will jump and profit may not follow. Touch wood, today that is occurring, but I do want to make the point that I don’t want people looking at our six-months return and judge us by monthly or six-monthly returns. I want you to judge us over one-, two-, three-, and five-year periods, because, as I said, we’re the tortoise, not the hare.

Most importantly, the function is available. It is disappointing that we’re in a virtual environment, but using Registry Direct, which is the company that we use for a number of services, and we’re very pleased with Registry Direct as a service provider, the opportunity to ask questions is facilitated in this presentation. I would like to encourage people to ask questions because it is a unique opportunity in the Australian community where public companies, directors are accountable to shareholders, and we respect that. We would like you to ask our board, ask me, ask the chair, ask the auditor, ask us. If you have questions that you think are material to your investment or making an investment at us, this is the time to ask. Thank you for that. I’ll move to the next slide. Thanks, Rebecca.

We’ve seen this, but we’re excited. The 2021 result was a little bit like the hare in some circumstance, but the broader strategy was not. Revenue was up 37 per cent to $116 million, so that’s starting to make us a reasonable-sized business. Again, as John pointed out, we are looking to increase our buy at least 15 per cent in the next 12 months.

EBITDA, which was a factor of scale, grew far greater than that number. 138 per cent growth in EBITDA. The budget, as John touched on, was around six and a half million for us. To perform at $11.5 million EBITDA was a tremendous result. The NPATA, the net profit after tax and amortisation, was $7.2 million. Talking to a number of institutions, they would like us to report on this factor. We haven’t previously reported on the NPATA, but institutions and sophisticated investors have requested that, so we will now be reporting EBITDA and NPATA as a consistent theme so you can track that.

That number was up 175 per cent. It’s an important number because our EBITDA and our cash performance are very similar. We depreciate the businesses that we acquire in an aggressive manner. We’re making acquisitions of particular businesses and then depreciating them over five- or 10-year periods, in most cases five, despite the fact that all of those businesses are improving. So, we have been writing down the carrying value of these businesses, I repeat, despite the fact that those businesses are actually worth more than they previously were when we bought them. So I think that’s a number that people should focus on, and net profit 5.5 million after tax.

I’ll talk to that one a little bit because our dividend was one cent, and that’s 1.3 million. We paid out 1.3 million of $5.5 million after tax, and that is because we want to maintain the strategy of using our cash to grow the business. We respect that there’s a number of things that you have to do with every dollar that you generate. One is obviously pay tax. The second is encourage shareholders to want to own the stock and get a dividend, but in our case we are factoring our business on looking to grow as much as we possibly can, using cash that we generate, rather than issuing shares and diluting the existing shareholders.

Because of that, we’re looking to maintain our dividends at around 30 per cent of net profit after tax, and reinvest 70 per cent of the earnings into making acquisitions. That is really important because the acquisitions that we’re looking to acquire are tending to be on a multiple of five. We’re generating a really strong return by using the cash that we generate to go out and buy another business, further generates cash. We’re generating between $800,000 and $1 million of cash each month and if we continue to use that cash that we are generating, we can buy businesses like we bought yesterday, a two and a half million dollar acquisition, for 100 per cent cash, but we expect to generate $500,000 additional EBITDA every year.

That is in our opinion, a far greater use of our cash generation than what it would be paying it out to shareholders and then issuing shares. Very important. Our market cap is $72 million at June 30, which was 6.3 times our EBITDA. The EBITDA is very close to our cash generation, so still a very low EBITDA multiple compared to our peers, and compared to the risk that you take by owning equity. Whilst our share price has gone from 45 cents to 70 cents, we’re still of the belief that a 6.3 multiple of EBITDA is very good long term value for the tortoise to continue to grow our business. Thanks, Rebecca.

There’s some metrics. Again, I won’t stress too much but you can see the graphs are all heading in the right direction on a very consistent period. We did have a little bit of a drop off in revenue in 2020, from 93 to 84 and a half, but up to 116 last year, and I can confirm that that will be at least another 15 per cent in 2022. The half year results for the first four months of the year are showing that is occurring. Our first half is always below our second half. We’ve got no doubt that we will exceed the EBITDA result for the first half on previous corresponding periods in this particular year.

NPATA, which is one of the factors that the market was telling me we need to report on, pleased we did because it highlights just how quickly we are generating NPATA. Dividends, whilst I said we are not looking to grow dividends aggressively, we are looking to increase dividends. Someone who bought the shares in 2019 paid 20 cents a share. The 2021 result of dividend was one cent on 20. That’s a 5 per cent two year out yield, and that’s the sort of thing we think is reasonable, considering we’re looking to invest that cash that we generate as I said, and buy businesses on three, four, five, six multiples, and generate more and more cash to continue to allow for the golden thing that Warren Buffett talks about, and that is the power of… I can’t even think of the name, but the power of the multiplication of earnings on earnings. I’ll move to the next slide.

John Larsen: Compound.

Garry Crole: Compounding. Thank you very much. How could I not realise that? That’s one of the seven or eight wonders of the world according to Warren Buffett, is the compounding effect. In our case, generating a million dollars a month odd of cash, and reinvesting that into businesses where we can get 25 per cent or 20 per cent compounding return means that the share price has to go up. And as you can see by our chart, it has. We are confident the stock at 6.3 times multiple still is a very good investment for the long term and should continue to appreciate as we continue to deliver. Obviously there’ll be like this chart shows, bumps along the way, where expectation and reality might not meet.

But the consistent thinking from our point of view is we’re just going to do it slowly and continue to use our cash to generate more cash, and give a share of that to investors that use more of that share to reinvest and continue to grow that, so the businesses that we’ve got that are sub-scale can become scalable and then we can look to make acquisitions of our larger businesses and really leverage up. Next one, Rebecca.

This is a bit of a picture of the divisions. We haven’t shown it this way before. There’s 20 different businesses within the four divisions. All of them have growth opportunity. There’s not one single business that we don’t believe has significant upside in its growth strategy, and all of them complement each other. It’s all about what does an advisor, what does an accountant, and what does the community need as a financial services to be able to invest their money or get advice in a better way? The wealth division is probably the division that a lot of people sort of focus Sequoia as being. It is not the case. We are a broader offering, but certainly our wealth business is growing.

We want to have more advisors using our licence. We want to have more advisors using under other licensees, using part of our other services, because our offer is far broader than our competition, and we want to provide each one of these businesses generating the type of return where it can make a meaningful contribution as a standalone business. But the sum of all those parts becomes much larger. I’ll talk about more of this in the individual businesses, so I’ll move to the next slide.

Revenue from all of them is positive except our direct business. But we have some plans on the direct business where 2021 was certainly impacted by COVID. The direct business does a lot of, or did in the past, a lot of events at hotels and events at centres and so on. Clearly in the COVID environment, you couldn’t do that. Our expense line dropped, as did our revenue line drop, because of the lack of event centres. But what it has taught us is that there’s so much more opportunity online to provide events and public information to long term investors.

We have a really good strategy in respect to our direct vision moving forward, and we do expect the revenue line to move back up. In the first four months, the revenue line is up 35 per cent in that particular division, so it’s outperforming the 15 per cent target we set and we have a number of things that we’re looking at in the direct area, where we think we can really start to add significant more content, and significant more value to the people that use our services. Next slide.

The wealth division, I think we all know what’s happening in financial services advice. The four big banks have exited the advisory business now in total. None of the four banks own financial services distribution anymore in the manner that we do. That’s created some opportunity. Many of those advisors got pushed across to a home without their normal consent. Advice businesses were sold and those advisors were shipped across to new licences. Some of those are very happy with that decision, but there continues to be an opportunity for many of those advisors now that they’ve settled in their new home, not necessarily happy in their new home and looking for groups like Sequoia and other participants in the market have talked about this, this is a continued opportunity.

I saw Count made a presentation this week where they’re seeing the same thing that we’re seeing. More advisors that have been coming out of the banks and insurance companies are looking for groups like ourselves to align with, and we are seeing some good organic growth in that area. The cost to provide advice has been one of the reasons why a number of advisors have exited the industry, and we are seeing numbers as a whole reduce. Sequoia is not seeing numbers reduce. Because we’re picking up more market share, we’re actually continuing to grow organically, despite the number of advisors falling 40 per cent since 2019.

Our numbers are significantly up in that period. That’s because in our opinion, we’re providing a premium service, more and more people are wanting to join us in an environment that is actually shrinking. Very positive reflection of the staff and the team, the practice managers, the compliance team, the support staff, the HR staff, the finance staff that we have at Sequoia. We have 104 employees across the group. I could not be more excited and appreciative of the support the team has provided the advice community in a COVID environment, and in a normal environment. I really think we’re best of breed and that is why advisors are selecting us.

It’s not a quick decision, but it’s an ongoing decision where we’re seeing more and more engage with us and more and more consider us for the next 10 years’ licensing environment. Revenue, our wealth division made 62 per cent of the group revenue. 62 million represented, sorry, 53 per cent of the group revenue. That will reduce in respect to percentage of revenue, because as the other divisions are growing revenue quicker, the percentage of group revenue will reduce. That said, we expect revenue to increase by more than the 15 per cent we’re talking about, to $72 million in 2022, up from the 62.

Strong growth, but I do expect it to represent less than 50 per cent of group revenues in 2022, and a reducing amount over time as the other divisions grow quicker and there’s particular more stable and more mature business within the Sequoia Group. Professional services, Rebecca.

This is a little bit of a hidden gem within the Sequoia Group. We provide the accounting industry documents, legal documents being the setup of companies, trusts, and super funds. We provide the accounting industry and the financial planning industry back office self-managed super fund administration. We have provided in the past the accounting industry general insurance broking services and authorised rep of another licence.

Yesterday we acquired an AFSL to allow us to be the licensee for general insurance broking and authorise in the future groups that were like us, that were authorised representatives of a general insurance licence, and that’s a major growth initiative for us. At the annual report period, we suggested that we would expect this particular division to move from $7 million to $15 million, double over the next three years. I’d like to update that now and suggest that we now believe that will occur in 18 months, as opposed to the previous 36 month forecast.

The documents business in particular is a very exciting software as a service business hidden within the Sequoia Group. We are setting up a hundred documents, a hundred new documents for businesses every week. Obviously if someone is setting up a corporate structure, they have a business. We are now looking to offer additional services to those companies that are looking to set up a business or set up a structure, and that would include for example, offering a payment terminal where we could share some of the income that the payment terminal generates.

Now, a lot of people setting up a structure, they might be setting up a small business in a market, they might be setting up a shop, they might be setting up a larger business, but certainly many, many of them are going to need some form of payment terminal. We are looking to align with one of the larger payment terminal businesses and just have a tick box. When you set up a company or a trust, super fund, do you want a payment terminal?

The same thing on general insurance. When you’re setting up your company, you probably need some public liability insurance. You may need some shop insurance. You might need some directors and officers liability insurance. Again, tick the box. Would you like us to talk to you about that structure? In the case of registry direct, we provide services to small businesses. Again, we could consider ticking the box, would you like a registry with your company? We’re looking at more and more software as a service ideas in respect to this business, because we have a thousand accounting firms who set up their clients’ new company structures with us out of the 10,000.

We’re servicing 10 per cent of this particular accountancy market, and we can really leverage our income in respect to this particular division. That’s an exciting component that we haven’t discussed too much in the past, but it’s going to drive revenue significantly. And as I said, we’d expect over 18 months, that business revenue to double.

Next division is the equity markets. Again, at the result period we talked about the success of Morrisons. The clearing business continues to grow at terrific growth. We expect full year ’22 revenue to increase by 30 per cent, so again, we talked about the 15 per cent as a group. The Morrisons business is growing at 30 per cent.

The market volumes have not gone up but our volumes have gone up 30 per cent since June 30. That is a reflection not of market volumes, that is a reflection of us winning more and more business from our competitors. We are a premium service. We are seeing more and more AFSLs selecting Morrisons as their clearer of choice. We have good relationships with IRESS to provide the technology for the users of our service to clear, and we’re winning more and more business. The Morrisons business in a sum of parts, I’ve had a number of people talk to me, why don’t we sell Morrisons? Because they’re looking at the valuation of competitors’ businesses coming to market, such as Open Markets are talking about a $100 million IPO, FinClear are talking about a $1 billion IPO that Magellan has major investment in. The Morrison business has very high growth, is profitable, and for example, the number one clearer of the options market, we’ve just appointed in the last couple of months, Angela Haywood, who is well known within the industry as being a senior executive at Pod and Bell Direct, helped grow that business was previously with, E-Trade, a terrific addition to our team. The team within Morrison has done an outstanding job, so very, very strong growth, but on summer parts basis, it does highlight, the valuation of Sequoia, but it is not something we’re looking to sell.

We’re very excited about the growth. We think it’s making a very meaningful contribution to our cash generation and our profit generation, allowing us to buy more and more businesses. But I just wanted to highlight that point.

Direct, as you saw by the numbers before, revenue, very low, but we’ve come to a point where we think we are now concentrating on this particular division as the next fix, if you like, and the next area of our business, that we’re looking to make a meaningful contribution. We expect EBITDA in this particular business to improve by 35 per cent year on year from here. It’s a very small business at the moment, less than $2,000,000 of revenue in 2021, we expect that to be 10,000,000 by 2024.

So, very high growth. Some major opportunities that we are looking at currently, the need for information and technology in the market, to not just financial planners and not just accountants and not just self managed Superfund trustees, but the broader public on education. The financial product is enormous. We have a terrific platform in financial news network and yield report. We want to grow those businesses, but also look to make complementary bolt-ons in the future to make this a real meaningful part of the Sequoia offering for the advice network. Next one, Rebecca.

Consolidated outlook from the half year perspective, happy to provide some forecast for the shareholders online. The half year corresponding period to December 20 last year, we did $52.4 million revenue. I’m confirming that we expect this to be $63 million for this half year period. So, above the 15 per cent number. EBITDA we forecast. Now, our actual result in the first half of 2020 was $4 million forecasting 4.8, so a 20 per cent growth. Net profit before tax, 2.4 to 3, forecasting 20 per cent, 25 per cent growth for the half year corresponding periods and net profit after tax about 25 per cent as well. So all numbers going in the right direction, all numbers, previous corresponding period, more than 15 per cent above the previous corresponding period 2020, but we’re not moving from the full year forecast at this stage. We’re comfortable with full year forecast being 15 per cent full year. Our second half last year was particularly good. We’re very confident in the way the business going. But as I said before, we do want to be the tortoise under promise, over deliver, and we’ll stick with a 15 year percent full year forecast for now, but you can be confident that, come the half year, you’re going to see some numbers above those metrics.

Next slide… Questions. So that’s me. I hope that that gives you a summary that we are confident. We believe the business is continuing to track in the right direction. There is no business within the group that we’re not of a belief that has high growth opportunity. As John touched on before, we are a very small business. We don’t want to be a very small business forever, and we are looking to invest and have the right people and make the right acquisitions to make us a more meaningful contribution and more attractive to the institutional investor. And those that have invested in us already, which includes a lot of advisors, a lot of accountants, and a lot of people who do business with us. Our register doesn’t move much, so I’d like to thank shareholders and certainly ask Steuart, do we have any questions that have come through?

John Larsen: I think Rebecca might have a couple of questions.

Rebecca Weir: Yes, sure. So we had two questions received prior to the meeting. So the first one is, I note under the various divisions, there appears to be about 20 different businesses. Which actual businesses do you see as the future stars of the group over the next five years?

John Larsen: Garry, you’ve already touched on that. Just answer that please.

Garry Crole: Yeah. I’m happy to answer that. I don’t see any businesses, future star. I think we have one strategy, and the one strategy is to provide services to the broader advice population. And each one is very complementary of the other. So, I wouldn’t say that which of the five… We have talked about sort of Morrison’s as being a short term star in the past, and I continue to expect the Morrison’s business to grow strongly. Some may argue that the direct business has been a language, but I do expect the direct business to be very strong growth into the long term future. So I don’t believe we have five standout stars. I think we have 20 businesses within one strategy that are very complimentary of each other.

That as a consolidated entity can continue to be the tortoise and just grow bit by bit, regenerate the use of our cash generation to compliment all of them. And I’m not sure if it’s the answer the shareholder’s looking for. So I don’t see any single stars as just one strategy as being the border investment opportunity. And I think that is our point of difference when we’re competing in the market on price and service is because we do get some contribution from a number of businesses, it allows us to be cost competitive on things like licensing fees, things like clearing fees, things like self-managed Superfund administration cost, things like how much we sell a company trust or Superfund for how much we charge our brokerage on the general insurance business. So standalone, those businesses might struggle, but because of the broader offering, all of them make a real meaningful contribution to each other and makes the business so much more stronger.

John Larsen: So Rebecca, any more questions?

Rebecca Weir: Yep. Thanks. So the second question we received was, why do you believe Sequoia is trading at an EBIT multiple of less than seven when other financial services businesses are double digit?

John Larsen: Well, I’ll say my bit and Garry might want to answer a bit more, but I think we’re under the radar of a lot of many fund managers, et cetera. And I don’t think that there’s any research coverage of Sequoia at all. And people look at us and they see what was mentioned before, all the different divisions. I don’t think a lot of people really understand how it all comes together. So I think that if we get our market capitalisation’s through $100 million, maybe a few more people will start to look at us. And the other thing is getting a consistent track record of growth over three or four reporting periods. Following what we have done the last two years. We may also get a bit more recognition and I don’t think anyone has really put any research out on what the different divisions are worth. And Garry’s touched on Morrison’s. I don’t know what the valuation of someone like Morrison’s is, but that it definitely would be over $20 or $25 million. Garry, do you want to add anything to that?

Garry Crole: Someone offers $25 million for Morrison’s, they got no chance of getting it. I just want to make that point, but I think it’s like the child at school, when they go to high school in the first couple of years, and they’re a very naughty student, it takes the teacher quite a long time for them to appreciate that they might have changed a bit and they’re going to be a meaningful student in the future. I think Sequoia’s history changed in 2019. And I think the market is continuing to watch us to see if we keep our promises and deliver, continue to under promise and over deliver. But I do agree with John that there’s not too many people following us, but I think there’s a lot of people beginning to look at a multiple of 6, 6.3 times EBITDA is very low.

I think there’s probably some thought that the shares have gone from 40 cents to 70 cents, so I might have missed the boat, but at 6.3 times I agree that we’re undervalued, but I think we’re just continuing to prove that we are worthy of being in somebody’s portfolio. And the only way, from my perspective, to do that is to continue to under promise and over deliver, generate cash, increase dividends and do what we say. And I think sometimes as that naughty student may have found, maybe it was me, that it takes time for people to change their opinion on something. And I think that’s what’s happening with us.

John Larsen: Thanks, Garry. Rebecca, any further questions?

Steuart Roe: Hi John, there are a number of questions that have come in from the shareholders. If you like, I’ll read them out one at a time.

John Larsen: Yes, please.

Steuart Roe: As well as a couple of people, or one person so far, put the hand up to actually ask a question verbally. So, I’ll do the written questions first. Liam has asked, is there a plan to gain brokerage coverage in order to expand the investor base?

John Larsen: Presently from my perspective, no, but Garry has more to do with brokers, et cetera, and other investors, Garry, any comment?

Garry Crole: We haven’t got a physical plan or a set plan to go out and pay for research or to look to engage. But we are finding that over the last six to nine months we have been getting calls from some of the breaking firms that are beginning to recognise our numbers and asking us to explain and present, whether that leads to them providing research and covering us is yet to be seen. But certainly the inflow of calls from a number of brokers that follow small caps has been on the increase. So hopefully, that leads to one of those businesses putting out some research on us and allowing that to see more and more institutions learn our story, engage with us, and find us of investment grade.

John Larsen: Steuart.

Steuart Roe: Someone has asked, this is a question in two parts, how are you locking in the planners on the businesses you buy? And what is to stop them getting paid out and walking after the earn out period?

Garry Crole: That’s a terrific question. And we do absolutely nothing too lock them in. And that is because I am of a very, very strong belief that I don’t want any advisors in the Sequoia Financial Group that don’t want to be here. We don’t pay upfront sign on fees. We don’t have lock in periods. We want one advisor sitting next to another advisor at a Sequoia event and being very positive about the experience that they have as an advisor within the group. We don’t have advisors leaving us, which is really good. We acquired the Philip Capital Advisor business. We acquired the business of the YBR advisors, which there was no lock in periods on any of those advisors whatsoever. None of those advisors have left us to join another group, not a single one. And that is over an 18 month period.

So people talk about, it’s very easy for advisors to leave. And that’s because I don’t think they appreciate the worth of an advisor like we do. We are their true business partner. We want to support them. We are looking for more brokers to join us, and we are looking for more financial planners to join us because we care about them, and we believe in them, and we will support them. Not because they have to be here and they’ve got some ridiculous agreement that says you can’t get out. That’s the old world. And I really appreciate that question, because I’m really passionate about it.

I am an ex advisor and I love advisors and I want the community to recognise how important the advisor is. They are not what the press paint them to be. They are very professional people who make real meaningful contributions to the community, and we love them. And groups like HUB24, and Netwealth, and AMP, and all the big businesses in the past, built their businesses because of advisors. Many of them have walked away and thrown them under the bus. We do not do that. We believe in the advice process. And because of that, we don’t see them leaving, and we’re not going to lock them in. If they’re not happy, they can move on to another. The grass is green on the other side.

John Larsen: Thanks, Garry. Steuart.

Steuart Roe: Pylon has asked, can you explain the strategy of buying a general insurance AFSL?

Garry Crole: Sure. I come… One of our directors on the board is a general insurance broker by trade. That’s Kevin Patterson. Kevin Patterson’s had a long history in this industry, working with Suncorp, also being the principal of Master Builders insurance brokering business. I know a lot of general insurance brokers and all of them are wealthy. That the margin on general insurance brokering businesses is 35 per cent to 40 per cent of revenue. It’s a terrific business. We want to provide, as I touched on before, the hundred odd companies that are being set up under our, under our document business, the opportunity to buy general insurance from us. The 400 financial planners that we have under the licence, have lots of SME clients that need quality, general insurance brokering. But more importantly and why we bought the AFSL along is because we want to provide general insurance advisors the same opportunity we provide financial planners, and that is to be licensed under our, AFSL to build their general insurance business and being a pro advice business, like groups like steadfast and groups like us brokers and groups like PSE insurance brokers, we see the multiples of earnings that they’re trading on. You know, we talked about us being on 6.3. They’re on 20 or 25 and that’s because it’s such a good business and we have the distribution capacity, the people, the know-how, and, and that’s why we bought it.

John Larsen: Steuart. Thanks, Garry. Steuart, any more questions?

Steuart Roe: Yes. Peter has asked, would you be able to talk a bit about the reasons why there is a first/second half bias in earnings, based on the FY21 figures and on the forecast FY22 figures?

Garry Crole: Yep. Sure. So what, what the financial planning and the advice industry finds is that fee for service income tends to be weighted to second half. Historically people make much larger, super superannuation contributions. For example, close to 30th of June, people buy tax advantage strategies, close to 30th of June people tend to like to pay their bills and their annual renewals for insurance and advice closer to 30th of June when they know their tax situation. So what we find more and more of the advisor income, more and more of the services that we provide. People set up companies trust and super funds prior to 30th of June. For example, people buy their general insurance just around 30th of June. So we, we find April, May, June are very high income reasons, because the community likes to pay their bills at that time. And we like to provide a service that suits our clients’ needs. So that, that is the reason. It has shifted a little bit over the last couple of years, but certainly it is still very disjointed towards people paying their bills in the second half.

John Larsen: Thanks, Garry. Any more questions, Steuart?

Steuart Roe: Yes. Mitchell has asked: “Hi, Garry, appreciate the overview. You touched a little bit, but can you please elaborate on what SEQ’s competitive advantage are in attracting advisors to the licence?”

Garry Crole: Yep. I think there’s a number of things, but I, I think our, I think it’s our staff. I think it’s our culture. You know, our staff have been with us long periods. I’m very selective in respect to the type of people. I want to represent our licences and engage with the advisors. So it’s not about having a coffee and, and being their friend. It’s actually about making a meaningful contribution to help them build their business, being an advisor at your own location. So these advisors, self-employed advisors at their own location using our licence, is a very lonely business. They, they, they need support. So they need to be able to contact the compliance department and get meaning for contributions on how to address their concerns. They need to have practice development managers that actually help them build their business.

They need to have commission teams that, when and income teams that they know they can rely on the administration support and the technical support they need to, to know that they can rely on them. And probably the most, the major reason is not many other groups are providing them multiple services that we provide. So we can, we can support them with their self-managed through fund admin and we can support them with their documents. We can support them with their media, make the, the services that they offer their clients completely holistic. And I, I think that is our point of difference. If we only did one of those, I think you’re in a price game. Where we’re in a service game, and providing multiple services that are not compulsory, that are elective is, is the reason.

John Larsen: Thanks Garry. Steuart. Any more questions?

Steuart Roe: Yes.

John Larsen: How many more questions are there, Steuart, roughly?

Steuart Roe: There’s only two more questions.

John Larsen: Okay.

Steuart Roe: And one voice question. Pylon has asked: “Can you explain the strategy…” Apologies. He’s asked that question already. Mitchell has asked, also a bit specific but: “Could you explain the economics of acquiring a client book, especially from advisor that was already part of the licence, but is retiring? Is it now that we received the revenue from the client book, as opposed to just receiving the licensing fees previously?”

Garry Crole: That’s right. Exactly right. Mitchell. So the advisors pay us around about $40,000 per year to use our licence. That may be a percentage of their income, or that may be a fixed fee. But it’s around about $40,000 per advisor for us to provide the services. That advisor might have say 500,000 income that they own, pay us 40,000, keep $460,000 to run their business.

When we buy the book, we buy the 500,000 and then we employ somebody or some, a number of people to support the client service. And yes, we keep the 500,000 income. So for those advisors that have had long-term relationships with their client base, and they want to retire with peace that somebody else is going to look after their clients in the same manner they did, we buy those client books. We employ those advisors for one or two years to transition the relationship from them to the new advisor that we have as an employee. We also offer the opportunity for other advisors in our network to buy it before us.

So encouraging them to have the same opportunity and, and try and match the advisor with the right new party. Certainly we’re not going to buy advisor books in Darwin when we are running this sort of business from Melbourne, it’s not possible. So we would look to find a Darwin advisor to buy that book within the network and keep it, but that’s the strategy. It’s absolutely about the continuation of service and higher margin. Absolutely.

Ends