Bell Financial Group Limited (BFG) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the Bell Financial Group 2023 Annual General Meeting. My name is Alastair Provan, and I'm your Chairman. We have a quorum, and I'm pleased to declare the meeting open. Today's meeting is being held online by a Computershare meeting platform. This allows shareholders, proxies and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting. In addition, shareholders and proxies have the ability to ask questions and submit votes. Attending online today are my fellow directors, Christine Feldmanis, who is standing for reelection today; Graham Cubbin and Brian Wilson, AO. In addition, attending online are Cindy-Jane Lee, our Group General Counsel and Company Secretary; Dean Davenport, our Group CFO; Brendan Goff, Group Head of Compliance; and Chris Wooden, and Luke Sullivan, our auditors from KPMG. A notice of the meeting was made available to all shareholders, and copies are also available from our ASX announcement on the 17th of March. I'll take the notice of meeting as read. Today's agenda, we'll begin the meeting with a presentation and then go through the formal proceedings. This year will include 2 resolutions; voting will be conducted by way of a poll on all items of business and voting is now open. If you're eligible to vote, press the vote icon, the resolutions will appear on your screen, along with the for, against and abstain voting options. Simply select one of these options to cast your vote, and you will receive a vote confirmation notification on your screen. You can vote at any time throughout the proceedings, and you can change your vote up until the time I declare the voting close. I'll give you a clear prompt later in the meeting to [indiscernible] in voting. Online attendees can submit questions at any time. To ask a question and select the Q&A icon, type your question into the text box. And once you have finished typing, please hit the send button. To ask a verbal question, please follow the instructions written below the broadcast. Please note that while you can submit questions now -- sorry, from now on, I will now address -- I will not address them until the time for questions towards the end of the meeting. Please also note that your questions may be moderated, or if we receive multiple questions on one topic, combined together. Maybe a short presentation; this first slide summarizes some of the Group's 2022 key financial metrics. We'll have a look at revenue, profit after tax, earnings per share, dividend per share, gross dividend yield, return on equity, our EBITDA margin, price earnings multiple balance sheet, funds under advice, our technology and platforms and products and services revenue and our share price, all of which I'll go into a little bit greater detail throughout the presentation. So 2022 was a difficult year for many fronts. There was quite a lot going on as everybody would be aware, with spiraling global inflation, higher interest rates, combined with a chronic labor shortage in Australia, and that resulted in significant upward pressure on costs. There was also unprecedented volatility in the energy markets. We had the conflict between Russia -- we still have the conflict between Russia and Ukraine, strained relations with China and a change in the Australian federal government. All of this contributed to a decline in the Australian equity market and across the board, particularly across the board, drop in equity capital market fee income. Against this background, I'm pleased to report the Group recorded, what I regard as a very credible full year profit of $25.7 million after tax, and importantly, all our business divisions were profitable. Review of the Group; 2022 revenue of $237.5 million was down 18.7% on 2022, due and mainly to lower equity capital markets revenue and also a reduction in our equities' execution revenue. Our earnings per share for 2022 were $0.08. Profit after tax was $25.7 million, which was down 41.8% on the previous year. We paid $22.5 million in fully franked dividends, and that represented a gross dividend yield of 10% based on the closing price -- BFG share price on the 31st of December 2022. Our 17.1% EBITDA margin in 2022 reflected lower revenues while maintaining a steady cost base. The movement in BFG share price was disappointing, and we still believe it does not reflect the value in each of our underlying businesses, nor the growth profile within those businesses. We produced a 15.7% return on equity in 2022, and we had net cash of $110 million at the end of December. The only debt on the balance sheet relates to the funding of the Bell Potter Capital margin lending book, which is, as always conservatively leveraged and secured against client listed cash equities portfolios and managed funds. Based on the BFG closing share price on the 31st of December, our enterprise value was $204 million. We had a market capitalization of $314 million. We had an EV to EBITDA multiple of 5.8x. We produced a gross dividend yield of 10.2% and our price earnings ratio was 12.2x. Our funds under advice at 31st of December were $72.8 billion. That was down -- sorry, 4.1% on the previous year, which basically reflects the move in the index, which was down -- the ASX 200 was down 5.5% over the course of the year. We have CHESS sponsored holdings of $66 billion, which was a decrease of 4.3%, again reflecting -- very much reflecting the move in the index. Sponsored assets in our portfolio administration service closed the year at $3.6 billion, down 6.8% year-on-year. Total client funds at calls at the end of the year increased to 1.66 and $461 million of that was held by Bell Potter Capital and the Bell Financial Trust. The margin loan book decreased by 7.1% to $496 million in 2022, reflecting a reduction in risk appetite, given the ongoing uncertainties in the market. Our Superannuation Solutions product, assets decreased by 8.8% to $869 million, again over the course of the year. We have a very straightforward corporate structure. We have 3 very distinct but complementary business divisions. Bell Potter securities, our retail and institutional broking business; under Bell Potter Securities, we have retail equities, which is domestic and international. We have an institutional equities desk. We have 24-hour futures and foreign exchange desks. We have fixed income desk. We have equity capital market teams in Sydney, Melbourne and Perth, and we have a syndication desk which is based in Sydney. Third-party platform or TPP is our technology and platforms business. TPP has 6 distinct business units. Bell Direct is our proprietary online retail broking platform. Bell Direct Advantage is our general advice for high net worth desk. Desktop Broker provides execution and clearing services to the financial planning industry. Desktop broker currently has agreements with over 3,700 financial planners, servicing more than 60,000 trading clients. White Label online broking, that's TPPs turnkey online broking solution. Current clients include Bell Potter Online, Macquarie and HSBC. Third-party clearing, TPP is an ASX general participant. It provides third-party clearing services to Bell Potter Securities and Macquarie Equities Limited. Our technology strategy that refers to the continuous development of proprietary platforms and software applications by our dedicated TPP, Bell Potter securities and Bell Potter capital development teams in Sydney, Melbourne, Perth and Kuala Lumpur. Across the Group, we have a dedicated team of over 100 IT systems and software development specialists located in Australia and Malaysia. Bell Product Capital, our products and services business, include Bell Potter portfolio administration service, Bell Potter Personal Superannuation Solutions, Bell Financial Trust, which is our client funds at call; Bell Potter Portfolio Lending, which is our margin lending business. We have 2 structured product, Bell Geared Equities Investment and Bell Equity Lever. they're both structured loan products. And we have an Australian equities research team providing coverage of 140 stocks from our 17 in-house publishing analysts. Bell Potter Broking, as I said, that covers our retail and institutional broking capability. Brokerage from our institutional and retail desks and commodities and futures and foreign exchange desk was $103.3 million for the year, that was down 10.9% on the previous corresponding period. $57 million in ECM and syndication fee income was down 45.4% on the preceding corresponding period, and that was a direct reflection of the domestic and global downturn in ECM transactions. We did, however, successfully execute 85 ECM transactions across the year, raising in excess of $1.9 billion in new equity capital, and we also improved our ECM market ranking from 10th in 2021 to 6 in 2022, and the Australian equity capital market league tables according to the Refinitiv 2022 Global Equity Capital Markets review. The decline in profit after tax was due in main to lower equity capital market revenue, and also a reduction in our equity brokerage revenue. The next 3 slides are simply details or tombstones on the way we successfully completed ECM transactions that we were involved in over the course of the year, and I can leave them with you to view at your leisure. Third-party platform is our technology and platforms business. We've maintained consistent growth in revenue, profit, sponsored holdings and client accounts over an extended period now. Revenue continued to grow in 2022, which supports our ongoing investment and the strategy in this space. Revenue of $30.4 million in 2022 was 9.4% higher than in 2021 and produces a 5-year compound annual growth rate of 18.9%. We produced $6.2 million profit after tax, a 30% increase on the PCP and a 40.3% 5-year compound annual growth rate. At the year-end, we had $31.5 billion in sponsored holdings, up 17.2% 5-year CAGR and we had 253,000 client accounts, and that was up 8.1% on the previous corresponding period. TPP now provides clearing services for over 90% of Bell Potter Securities' Australian secondary market business, and during the year, we achieved a significant milestone, with the completion of the onboarding of our first significant external third-party clearing client, Macquarie Equities Limited. Third-party clearing will continue to be a key business strategy for the Group. Bell Potter Capital is our products and services business, and it includes margin lending, structured products, Bell Financial Trust, Portfolio Administration Service and Super Solutions. We remain the only nonbank margin lender in the Australian marketplace. We had -- we produced $41.9 million in revenue over the year, which represents a 7.65% compound annual growth rate, $11.1 million of profit after tax. There's a 8.15 year compound annual growth rate, $496 million loan book as of 31 December, 2022, 13.8% 5-year CAGR and $461 million in the Bell Financial Trust at the end of the year. With $4.2 billion in client funds in our portfolio administration and superannuation platform, and that represents a 6.9% 5-year compound annual growth rate. Our strategy remains in place for a third-party platform and Bell Potter Capital. Our investment in -- we have an ongoing investment strategy in the proprietary technology platforms and products and services. It's a key to the future growth of the business across the Group. Both our technology and platforms and products and services business continue to grow and make increasing contributions to Group revenue and earnings. 2022 was another record year for both revenue and earnings in these businesses. Combined revenue of $72.3 million was a 6.9% increase on the PCP and accounted for 31% of total Group revenue on a 5-year compound annual growth rate of 11.7%. Combined profit after tax of $17.3 million was a 12% increase on the preceding corresponding period and accounted for 67% of total Group profit after tax and a 5-year CAGR of 15.5%. Currently, approximately 9% of our Group funds under advice, which is around $6.9 billion use our various products and services. Quick update on the first quarter of 2023. Again, it's been a slightly quieter start to the year, with the majority of the investor concerns from 2022 that I mentioned previously are all still in play. Also in Australia, in addition to a new federal government in Canberra, we now have a new state government in New South Wales. And while global market indices have been remarkably resilient, there are liquidity vacuums in the secondary market, and accordingly, our retail and institutional equities [ turnover ] has been lower. Equity capital markets again have been particularly tough, especially in the IPO sector, which is virtually closed. We do have a strong pipeline, but completion will obviously depend on the market's risk appetite through the remainder of the year, but we remain optimistic. Unaudited first quarter Group revenue was $53.3 million, which was a 6.1% decrease on the previous corresponding period and our unaudited first quarter Group profit before tax was $5.8 million, which was a 29% decrease on the preceding corresponding period. One of the contributing factors to that over the quarter was that March '22 was one of our strongest months of last year. Our Funds Under Advice remained steady at $75 billion at 31st of March, and that was a modest 3% increase on the 31 December, 2002 (sic) [ 2022 ] number. All our business divisions remain profitable, with technology and platforms and products and services businesses within the Bell Porter Capital and third-party platform businesses, again, leading the way. Their combined first quarter revenues were 9.8% ahead of the preceding corresponding period, and profit before tax was up 17.9%. As previously advised, in February '22, we received notices from AUSTRAC for Bell Potter securities, Bell Potter Capital and third-party platform requiring the appointment of an external auditor to assess the compliance with our -- assess compliance with our obligations under the Anti-Money Laundering and Counterterrorism Financing Act of 2006. Also, as previously advised, the auditor's reports were completed on time and lodged with AUSTRAC and as such, all the actions required under the notices are now satisfied. All recommendations to uplift our AML/CTF program are being implemented, and we are engaging with AUSTRAC on the next steps in closing out any remaining items and moving to a standard supervision status. We'll now move to the formal business of the meeting. The first item of formal business is the tabling of the reports. I now lay before the meeting the financial report, directors' report and auditor's report for the company for the year ended 31 December, 2022. Next, we have the resolutions. The first resolution relates to the reelection of Christine Feldmanis. Christine is due to retire from office and being eligible, offers herself for reelection. The Board, in the absence of Christine Feldmanis, unanimously supports a reelection on our move that Christine Feldmanis be reelected as Director of the Bell Financial Group Limited. The summary of votes received before the meeting is now shown on the screen. We'll now move to consider the second resolution, which is the adoption of the company's remuneration report for the year ended 31 December, 2022. The remuneration report is contained in the Director's Report section of the Annual Report, and sets out the policy for the remuneration of the key management personnel of the company. The corporation requires that a resolution be put to the vote at the AGM, that the remuneration report be adopted. The resolution is advisory only, and will not bind the company or the directors. There are restrictions on voting on this item by members of the company's key management personnel and the closely related parties. Details of these restrictions are set out in our notice of meeting, and I now move that the remuneration report be adopted. The summary of votes received before the meeting is now shown on the screen. We're now happy to take questions from shareholders. Do we have any questions? Cindy?

Mr. Chair, we've received a question from a shareholder, Mr. [ Robert Slonica ] who asks, a BFG ASX announcement indicated that the AML KYC external audit was delivered to AUSTRAC. Have any subsequent communications being received from AUSTRAC?

Thanks, Cindy. As mentioned earlier, we are currently engaging with AUSTRAC on the next steps and closing out our remaining items and moving to a standard supervision status.

Thank you. Mr. Chair. We've received another question from Mr. [ Robert Slonica ], who asks, can you make any forward-looking statements at this time, as far as the business environment or financials?

Given the nature of broking and financial markets, particularly with all external factors at play in the moment, I don't think it's possible to make forward-looking statements with any sort of accuracy.

Thank you. Mr. Chair, we've received another question this time from a shareholder, [ Wayne McDonald ], who asks, my question for the AGM is due to market conditions undervaluing the Bell share price, is there now an opportunity to do a share buyback to increase shareholder value?

We're not considering a buyback currently. Our view is that we should continue our current business strategy and invest any cash reserves in the key components of the business, as we've been doing for some time.

Thank you. Mr. Chair, we've received a question from Steven Main, who asks, which of the proxy advisers are covering us, and have there been any material proxy protest votes? Will you disclose the proxy votes before the debate on each resolution, so shareholders can ask questions about the reasons if there have been any protest votes? Also, why not disclose the proxies to the ASX with the formal addresses like others now do?

I think I might have you answer that one, Cindy?

Sure. I guess what I would say is that, thank you for your question. We're not aware of any material proxy adviser process votes that we have received.

Thanks, Cindy. Are there any other questions?

Yes, there are a couple of more questions, Mr. Chair. Another [indiscernible] from [ Stephen Main ]. Given the interesting discussions across a range of topics today, including on the remuneration report, could the Chair undertake to make an archived copy of the webcast plus a full transcript of proceedings available on the company's website? The likes of 9, AGL, ASX, ANZ, Domino's and Lendlease all produced their first AGM transcripts in 2021. Will you follow so today? This is something that IAG has been doing since 2003?

Again, you might answer that, Cindy. I know that we -- I think we did it last year. And it would be our intention to do it this year, but perhaps you could clarify that for me?

I agree, Mr. Chair. Last year, we made the link to the AGM webcast available on our website, www.bellfg.com.au, and that is our intention at this stage.

Thank you. Any further questions?

Mr. Chair, we have another question from Steven Main. Bell Financial Group was [indiscernible] in the 2021 to 2022 AUSTRAC Annual Report, and as an organization, which had warranted attention from Australia's anti-money laundering regulator. Please provide a summary of our past engagements with AUSTRAC and what ongoing AUSTRAC actions or programs are we currently involved in? Is the full board engaged on this issue and how prominently does AUSTRAC now feature on our risk register?

Thank you. I think we've dealt with that question in the presentation and being a previous question. But I'll also just add that yes, the full board's engaged and informed.

Thank you, Alastair.

Is that it? No more questions?

There are no more questions, Mr. Chair.

Thank you. All right. I would now like to advise that shortly, the voting on the resolutions will close. We'll take a few moments now to allow you to finish voting. Please complete your voting now. Voting will close automatically in 2 minutes' time, I think -- yes, 2 minutes. Okay, thanks. Thank you. The voting is now closed. Please note that the final results will be advised to the ASX and also made available on Bell Financial Group's website after the meeting. Thank you all for your attendance today. As the business of the meeting is now completed, I declare the meeting closed. Thank you again.