The Australian Ethical Investment Ltd (ASX: AEF) share price is under the spotlight after the fund manager reported green, growing numbers in HY22.
Australian Ethical HY22 result
Here are some of the highlights from the report from Australian Ethical:
- Operating revenue increased by 38% to $35.2 million
- Operating expenses up 45% to $27.4 million
- Net profit after tax (NPAT) up 5% to $5.4 million
- Underlying net profit after tax grew 12% to $5.4 million.
- Interim dividend of 3 cents per share
A key driver of revenue (and profitability) for the company is its funds under management (FUM). The more funds it manages, the more money it makes.
FUM finished at $6.9 billion on 31 December 2021, which was an increase of 38%. Average FUM increased 47% over the period. The business achieved net inflows of $0.6 billion over the six months, which was a rise of 42%.
The number of customers rose 22% since 31 December 2020, with managed fund customers growing 32% and super members growing by 20%.
According to the KPMG 2021 Super Insights Report, Australian Ethical has/had the industry-leading superannuation retention rates. That’s a very good positive because of how long-term the super FUM is going to stick around. Also, generally, people continue to contribute to their super fund until retirement – meaning long-term growth.
Growth investing
Australian Ethical is considering options to grow its institutional client base. At 31 December 2021, institutional money only made up 6% of total FUM. Growing this could be very useful for the Australian Ethical share price.
You may have noticed the sharp rise in operating expenditure to implement its high growth strategy. There were a few different elements to that rapid expense growth.
The first was the investment in its business capability through a number of important hires. Headcount increased by 20 to 92 at December 2021.
Australian Ethical has been investing in its brand and marketing to grow brand awareness and expand the preference for Australian Ethical with advisors. I know I’ve been getting lots of ads on YouTube from Australian Ethical recently!
Expenses also rose in relation to implementing a number of key strategic projects including technology initiatives, new product launches and merger & acquisition due diligence costs.
Outlook and my thoughts on the Australian Ethical share price
Australian Ethical is pursuing a number of growth efforts, including digitising the customer experience and transforming the back-office systems to scalable technologies.
Management said the business is well-positioned to benefit from regulatory, policy, market and investor tailwinds, whilst implementing its strategic roadmap to capture the opportunities ahead.
It’s expecting further investment in its high-growth strategy in the second half. It’s also seeking out “appropriate” acquisition opportunities to accelerate strategic plans.
The Australian Ethical share price comes with a high price/earnings ratio (p/e ratio), but it has also fallen 40% since the start of this year. I think this volatility could prove to be a long-term opportunity to look at the shares, if investors are interested.
