One other comment - and if there is an easier way to provide feedback, let me know - but I think it would be super helpful to get broader company overview of the company’s history and context. For example, you wrote that EPS was >30% cagr but TSR <10%. What’s going on there? Skepticism on extensive M&A? Distrust of mgmt? Extremely rich starting valuation? Increased leverage? Always hard to truly pinpoint market concerns but given how well you know the company, that would be interesting to get your views on.
My apologies, that TSR figure is actually a typo. TSR CAGR was 18.7% from 2016 through to the date of posting. With about 4% of that coming from payouts.
Regarding the variance. It was relatively pricey on the initial raising baking in the new entity's profits with a 34x entry multiple. The multiple is nearly 1/3 of this now. (On stat PE basis).
Excluding the payouts the math is price 2.8x made up of eps 7.17x multiplied by PE 0.39x
Going forward I will look to improve the digestability of these deep dives. I believe the DSW capital one is my best of late (in spite of the performance) and that type of structure is what I want to maintain as a standard.
If Quantum do end up purchasing Morrison’s, is there a requirement for SEQ to match their capital commitment? I would imagine they are looking to invest in it to bring scale…
That's a good question, I think you are referring to the regulatory buffer? I will assume you are.
I am not sure actually, but they are selling it with excess regulatory capital. I suspect that some part of incremental earnings will be retained in order to match any increases in regulatory buffer.
On investing for scale, I doubt they will add additional capital given the capital gained from the SPAC purchasing New Quantum, but never say never. They may increase/decrease their stake in the future.
It's possible, I do know he likes DVR so perhaps if at the right price and time they may land a successful negotiation.
I believe the board is pushing for a special dividend, but Garry himself wants to retain capital and reinvest. And I believe his #1 intention is to buy insurance brokers, closely followed by AR client books (licensee growth).
My own preference is a special dividend as they have substantial franking credits on hand to realise ($12.9m at 30 June 2022, this permits a cash dividend of ~$30m).
Have you considered adding revs/profits by each division into the writeup? Maybe this data is easily available in Sequoias investor presentations, but with this as my first exposure to the company, I was looking for more signposts on which divisions were most significant contributors to total profitability and what the trends in revs/profits were.
I have had some feedback from another of that exact question. I didn't include in the write up but for your question I have the answer.
In 2022 Revenue was split in the below %
licensee 35%
Equity markets 40%
Prof services 18%
Direct Investment 6%
Going forward, but obviously will change with the in-year acquisitions done in 2022 and the divestment this year (in light of current trading halt) I suspect would look more like this on a profit contribution basis:
licensee 35%
Equity markets 30%
Prof services 20%
Direct Investment 15%
But it's also important to see where they are going and the data suggests to me that they are wanting to specifically grow insurance a lot more than the rest. Second to that I believe the intent is legal docs and their adviser count
One other comment - and if there is an easier way to provide feedback, let me know - but I think it would be super helpful to get broader company overview of the company’s history and context. For example, you wrote that EPS was >30% cagr but TSR <10%. What’s going on there? Skepticism on extensive M&A? Distrust of mgmt? Extremely rich starting valuation? Increased leverage? Always hard to truly pinpoint market concerns but given how well you know the company, that would be interesting to get your views on.
My apologies, that TSR figure is actually a typo. TSR CAGR was 18.7% from 2016 through to the date of posting. With about 4% of that coming from payouts.
Regarding the variance. It was relatively pricey on the initial raising baking in the new entity's profits with a 34x entry multiple. The multiple is nearly 1/3 of this now. (On stat PE basis).
Excluding the payouts the math is price 2.8x made up of eps 7.17x multiplied by PE 0.39x
Going forward I will look to improve the digestability of these deep dives. I believe the DSW capital one is my best of late (in spite of the performance) and that type of structure is what I want to maintain as a standard.
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02685696-2A1460679?access_token=83ff96335c2d45a094df02a206a39ff4
Yes quite happy with this one.
Little boomer again....keep em coming Gaz
Hello,
If Quantum do end up purchasing Morrison’s, is there a requirement for SEQ to match their capital commitment? I would imagine they are looking to invest in it to bring scale…
That's a good question, I think you are referring to the regulatory buffer? I will assume you are.
I am not sure actually, but they are selling it with excess regulatory capital. I suspect that some part of incremental earnings will be retained in order to match any increases in regulatory buffer.
On investing for scale, I doubt they will add additional capital given the capital gained from the SPAC purchasing New Quantum, but never say never. They may increase/decrease their stake in the future.
Ok, great. Interesting prop considering the SPAC(even at eyewatering val) and MS divestment…..
I see Garry has mentioned he likes DVR business and management, post MS deal; circa $60mm bank bal, coul be a nice little bolt on,no?
Yeah, DVR would be a great fit but can’t imagine hub would give it up cheap. Exciting month ahead
Has he mentioned he wants to buy insurance brokers, if so where? Should help with a val....l
I don’t think he has in any announcements but he talked about it at the coffee microcaps event in may and has told me directly before
It's possible, I do know he likes DVR so perhaps if at the right price and time they may land a successful negotiation.
I believe the board is pushing for a special dividend, but Garry himself wants to retain capital and reinvest. And I believe his #1 intention is to buy insurance brokers, closely followed by AR client books (licensee growth).
My own preference is a special dividend as they have substantial franking credits on hand to realise ($12.9m at 30 June 2022, this permits a cash dividend of ~$30m).
Have you considered adding revs/profits by each division into the writeup? Maybe this data is easily available in Sequoias investor presentations, but with this as my first exposure to the company, I was looking for more signposts on which divisions were most significant contributors to total profitability and what the trends in revs/profits were.
I have had some feedback from another of that exact question. I didn't include in the write up but for your question I have the answer.
In 2022 Revenue was split in the below %
licensee 35%
Equity markets 40%
Prof services 18%
Direct Investment 6%
Going forward, but obviously will change with the in-year acquisitions done in 2022 and the divestment this year (in light of current trading halt) I suspect would look more like this on a profit contribution basis:
licensee 35%
Equity markets 30%
Prof services 20%
Direct Investment 15%
But it's also important to see where they are going and the data suggests to me that they are wanting to specifically grow insurance a lot more than the rest. Second to that I believe the intent is legal docs and their adviser count
Thanks for this write up. Very interesting opportunity. One small point: I think post deal EBITDA is at around 8.5M instead of 10M.
it's $8.5m in the presentation yeah but it's the FY23 number which includes the $2m remediation provision brought to account. Hence why I used $10m.