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

Bell Financial Group 2024 Annual General Meeting. My name is Brian Wilson, 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 via the 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 today are my fellow directors, Alastair Provan, who is standing for election today; Andrew Bell, who is standing for election today; Graham Cubbin; and Christine Feldmanis. I am also standing for reelection today. In addition, attending today are Arnie Selvarajah and Dean Davenport, our co-CEOs; Cindy-Jane Lee, Group General Counsel and Company Secretary; and Luke Sullivan, our auditor from KPMG. The notice of meeting was made available to all shareholders, and copies are also available from our ASX announcement on the 18th of March. I will take the notice of meeting as read. We will begin the meeting with a presentation, then go through the formal proceedings, which, this year, include 4 resolutions. Voting will be conducted by way of poll on all items of business. 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. 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 closed. I will give you a clear prompt later in the meeting to warn of the close in voting. Online attendees can submit questions at any time. [Operator Instructions] Please note that while you can submit questions from now on, I will not address them until the time for questions towards the end of the meeting. We may also limit the number of questions asked to 2 to 4 questions per shareholder proxy to give adequate opportunity for all shareholders to ask questions during the meeting. If we are not able to answer all questions, we will endeavor to respond to your questions outside of the meeting. Please also note that your questions may be moderated or, if we receive multiple questions on one topic, combined together. Before I hand over to our co-CEOs, I would like also to acknowledge the retirement of Alastair Provan, our previous Managing Director and Executive Chairman. Alastair has been part of the group for over 40 years and has been instrumental in transforming the group from a small commodities business to the prominent diversified financial services business it is today. On behalf of the Board, shareholders and staff, I would like to thank him for his contribution to BFG, and say how pleased I am that he's agreed to stay on the Board as a nonexecutive director. I will now ask our co-CEOs to present an overview of our results for 2023.

Thank you, Brian. Good morning, everyone. My name is Arnie Selvarajah, I'm one of your co-CEOs. 2023 was the second difficult year in succession for the equities markets, and as a result, broking businesses. Persistently high inflation, further interest rate rises and escalating geopolitical tensions, including Ukraine and in southern Israel, contributed to an ongoing lack of investor confidence across markets. Against this backdrop, it's pleasing to report that the group delivered a consistent revenue and earnings, including a very credible $24.3 million profit after tax. Funds under advice reached an all-time high of $79.8 billion. Our Technology & Platforms and Products & Services businesses delivered another record result with combined revenues of $80.9 million and profit after tax of $20.2 million. Both businesses continue to have positive momentum. Throughout the year, we were focused on new initiatives, the completion of projects, and there were changes to the leadership team. The migration of the Bell Potter Securities clients to the Third Party Platform was completed. We appointed a new group head of sales, who is focused on developing distribution channels for our products and services. We continue to strengthen our cybersecurity framework, including staff awareness through ongoing training. 2023 also saw the finalization of AUSTRAC's review of our anti-money laundering and counterterrorism financing compliance measures with AUSTRAC concluding their review with no further regulatory action. This was a pleasing outcome. In December, we made the decision to close the Bell Commodities futures business. The decision was not taken lightly given the historical significance of the futures business. However, persistent pricing, cost pressures and difficulty in achieving scale no longer justified the capital commitment to run this business. Turning to our strategy -- turning to the business and recapping on the structure of the business. We have 3 components of the group. We're a highly diversified financial services business and wealth management business as well. The 3 components include Bell Potter Securities, which is our retail and institutional broking business and includes our retail equities desk, an institutional equities desk, an equity capital markets business, foreign exchange, superannuation and fixed income products. In Bell Potter Capital, our Products & Services business, we have the Bell Potter Portfolio Administration Service; Bell Potter Personal Superannuation Solutions; Bell Financial Trust, which holds our client funds at core; our Bell Potter Portfolio Lending business; Bell Geared Equities Investments; and our Bell Equity Lever Structured products. And lastly, the third component is Third Party Platform, our Technology & Platforms business. This TPP has 5 distinct components. The Bell Direct brand, which is our online proprietary online retail trading platform; Desktop Broker, which provides execution and clearing services to the financial planning industry; Bell Direct Advantage, which provides general advice to our high-net worth clients. We have a white-label online broking business, which provides a white-label platform for Bell Potter Online, Macquarie Online Trading and HSBC Online Share Trading. And lastly, a Third Party clearing business, where TPP is an ASX general participant, and we provide third-party clearing services to Macquarie Equities Limited and Bell Potter Securities. Turning to our strategy now. Our core strategy has been to diversify revenue streams and earnings streams across the group. The value and benefits of this strategy are now starting to show in the growth and in the results we are seeing in our Technology & Platforms and Products & Services businesses. The investments in these businesses has created a good foundation for ongoing growth. To elaborate a little further, our Technology & Platforms and Products & Services businesses delivered record revenue and earnings for the tenth consecutive year. Their combined contribution represented 32.8% of group revenue and 83% of group profit. We expect earnings growth in these businesses to continue. These businesses are now at a scale where revenue growth contribute significantly to group earnings. They provide relatively stable, recurring revenues through the market cycle. Approximately 10% of group funds under advice or $8 billion currently use our products and services with opportunity for further expansion. In addition, we continue to develop our people, our technology and our products, and this is key to unlocking value and growing our business. With respect to people, we are always evaluating opportunities to grow our team through both internal and external channels. We'll continue to develop our next generation of advisers and managers, and we continue to build on relationships across our broad client base that includes internally advised clients, brokers, corporates, institutional clients, DIY investors and externally advised clients. With respect to technology, we will take advantage of our market-leading proprietary technologies to capitalize on new opportunities. We're now operating through a single integrated end-to-end platform, which creates scale, reliability and delivers cost efficiencies, resulting in improved margins for the group. Ongoing investment in our cybersecurity posture will ensure our technology platform and systems remain secure. With respect to products, we will look to expand the distribution of our products and services through both internal and external channels. We'll also look to explore both opportunities to grow our products and service offerings. I'll now hand over to Dean Davenport for the 2023 overview and the first quarter 2024 update.

Thanks, Arnie. 2023 revenue was relatively consistent with the prior year. Growth continued in the products, services and technology and platforms businesses. However, this was offset by [ lower ] breaking revenues in the retail and wholesale businesses. Despite it being another difficult year in equity markets, the group delivered a full year profit of $24.3 million, reflecting the underlying strength of the group. The result enabled us to maintain a $0.07 per share fully franked dividend, representing a 7.4% gross yield. The group is in a strong financial position. We are well capitalized with a solid cash back balance sheet. Net group cash at 31 December was $114 million. The only debt on balance sheet relates to the funding of the Bell Potter Capital margin lending book, which continues to be conservatively managed and secured against client cash equities and managed funds. Based on the BFG share price at 31 December of $1.35, we had an enterprise value of $319 million, a market capitalization of $433 million, an EV over EBITDA multiple of 11.2x, a gross dividend yield of 7.4% and a price earnings ratio of 17.8x. Funds under advice, including portfolio administration, superannuation, CHESS Sponsored Holdings and our margin loan book all hit record highs during 2023. At 31 December, total funds under advice was $79.8 billion. CHESS Sponsored Holdings closed the year at $76.3 billion, a 15.6% increase. Assets under administration in PAS closed the year at $5.1 billion, up 21.4% year-on-year. Total client funds at call were $1.6 billion, including $393 million held in the Bell Financial Trust. And margin loan assets increased 9.2% to $577 million. Retail and Institutional Broking. Looking at our individual business divisions. Our Retail, Institutional, Commodities and FX desks generated $95 million in revenue, down 8% on 2022. Our Equity Capital Markets division put in another noteworthy performance despite the many factors weighing on financial markets. The team successfully executed 87 transactions, raising more than $1.9 billion in new capital across 2023, placing us sixth in the Australian Equity Capital Markets league tables. The decline in profit in retail and institutional broking was due in [ the main ] to lower transactional broking revenues reflecting the difficult market conditions. Technology & Platforms. Our Technology & Platforms business has leveraged the scale and continues to deliver consistent growth in both revenue and earnings. We expect this growth will continue. Across 2023, this business generated $36.4 million in revenue, a 20% increase on 2022; $8.2 million profit, a 33% increase on 2022; and sponsored holdings grew 13% to $35.6 billion. Our investment in technology also delivers cost efficiencies. The migration of Bell Potter Securities clients to Third Party Platform's proprietary systems was completed during the year, delivering synergies, reliability and scale, and paves the way for an improved streamlined kind experience going forward. Products & Services. Products & Services revenue and earnings have also grown consistently over an extended period. Across 2023, this business generated $44.5 million in revenue; $12 million profit, an 8% increase on 2022. The loan book ended the year at $545 million, a 10% increase on 2022. Bell Financial Trust ended the year at $393 million. And PAS and superannuation assets increased 21% to $5.1 billion. First quarter 2024 update. The positive momentum we saw in the final quarter of 2023 has carried into 2024, giving us a strong start to the year. Transactional broking revenues are up, reflecting a positive shift in investor sentiment, and equity capital markets remain active. Unaudited group revenue for the quarter was $62 million, a 17.4% increase on the previous corresponding period. And unaudited group profit before tax was $9.3 million, a 60% increase on the same period last year. Funds under advice were $82.5 billion at the end of March, a 3.4% increase on 31 December. And importantly, all our businesses were and remain profitable. I will now hand back to our Chairman for the formal business of the meeting.

Thank you, Dean. The first formal item of 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 2023. Next, we have the resolutions. The first resolution relates to the election of Alastair Provan. Alastair Provan, having been appointed as a nonexecutive director since the last Annual General Meeting, offers himself for election. The Board, in the absence of Alastair Provan, unanimously supports his election. I move that Alastair Provan, being eligible, be elected as a director of the company. The summary of votes received before the meeting is now shown on the screen. The next resolution relates to the election of Andrew Bell. Andrew Bell, having been appointed as a nonexecutive director since the last Annual General Meeting, offers himself for election. The Board, in the absence of Andrew Bell, unanimously supports his election. I move that Andrew Bell, being eligible, be elected as a director of the company. The summary of the votes received before the meeting is now shown on the screen. I will hand over as Chairman of the meeting to Graham Cubbin to deal with the next item.

Good morning. Brian Wilson is due to retire from office and offers himself for reelection. The Board, in the absence of Brian Wilson, unanimously supports his reelection. I move that Brian Wilson AO, being eligible, be reelected as a director of the company. The summary of voting by proxies received on this resolution is now shown on the screen. I will now hand back to Brian.

We will now move to consider the next resolution. I move that the maximum annual aggregate of remuneration that nonexecutive directors are entitled to be paid for their services of directors out of the funds of the company under Rule 10.8(a) of the company's constitution be increased by $400,000 and fixed at $900,000. There are restrictions on voting on this item by directors and their associates. Details of these restrictions are set out in our notice of meeting. The summary of votes received before the meeting is now shown on the screen. We will move to consider the final resolution, which is the adoption of the company's remuneration report for the year ended 31 December 2023. The remuneration report is contained in the Director's Report section of the annual report and sets up the policy for the remuneration of the key management personnel of the company. The Corporations Act 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 their closely related parties. Details of these restrictions are set out in our notice of meeting. I move that the remuneration report for the year ended 31 December 2023 be adopted. The summary of votes received before the meeting is now shown on the screen. We will now take questions from shareholders. Are there any questions?

Mr. Chair, we have questions from Stephen Mayne who asks, since 2019, there have been more than 50 takeovers announced or completed companies capitalized and more than [ 250 million ] [indiscernible] managing new flows. ASX data shows the number of [ listed ] equities have fallen for 14 months in a row. Why is the ASX being [ out ] like this? And is this a problem for our business?

While we are unable to comment on the ASX generally, we do note that the ASX has stated that it is a pipeline of listings across a variety of sectors this year. I might also just add, having been involved in the market for around 50 years, this idea of the thinning out of the market is not a new one. Back in 1980, I was involved in the then-largest takeover in Australia, which was $76 million. And then in 1981, the next largest takeover in Australia, which was $235 million. Transactions of that size wouldn't -- would hardly [ rate ] a mention in the newspaper these days. And even then, there was talk of the stock exchange reducing in size, limited number of opportunities for investors and so on. Somehow like any organic enterprise, the exchange seems to keep reinventing itself, and new companies and new businesses keep developing. So I don't think, over the years, it's been a problem for BFG, and I don't expect it will be going forward either.

Thank you. Mr. Chair, we have another question from Stephen Mayne who asks, [ Patrio ] [indiscernible] for listed companies to raise money because nonparticipating retail shareholders will [ compensate ] if they don't participate. Why have we never done a [ Patrio? ] And please give examples of [ raising ] capital listings? Capital raisings were those gone out of its way to look after retail shareholders as opposed to the [ big end of the town ] [indiscernible] [ the end of town. ]

Our corporate division acts as underwriter and lead manager advising ASX-listed companies who wish to raise equity capital. The most suitable office structure preferred by a particular company at the particular time will depend on various factors and is determined by the company, not by us. I might again add the only capital raising that BFG has done since it was listed was in 2018 for the acquisition of the elements of TPP we didn't own, and that capital raising by BFG itself was by way of a rights issue to all shareholders.

Thank you. Mr. Chair, we have a question from [ Samuel Walter, ] who asks, could you please provide an update on the growth in TPP client numbers?

I'll hand this question across to Arnie Selvarajah, our co-Chief Executive.

Thank you, Brian. So during the year 2023, we grew our client numbers by approximately 10,000 from the end of December 2022. A call out within that growth is in our Desktop Broker business, where we've been able to make strong inroads into the financial planning community, including some strategic relationships with larger financial planning groups, including account and others. That growth is slight -- it's consistent with the growth that we've had in previous years in the TPP business. A result of that growth in number of clients, you'll see also, has resulted in the growth in our sponsored holdings from $31.5 billion to $35.6 billion at the end of 2023.

Thank you. We're still having some questions coming through. So I'm just going to pass another one on now. Mr. Chair, we have another question from Stephen Mayne, who asks, given the interesting discussions across a range of topics today, could the Chair undertake to make an archived copy of the webcast available on the company's website? Also, will you have a physical component to next year's AGM? So I'll take that one, if that's okay. Yes, it's our intention to upload the full webcast to our website, including the shareholder question-and-answer section. I believe that concludes the questions.

There was a question on physical.

I'm not sure what it means by physical, Mr. Chair. Right. No, we'll continue, at this point, to do our virtual meeting. Understood. Thank you.

So there are no other questions?

No, there are not.

I'd then like to advise that shortly the voting on the resolutions will close. We will take a few moments now to allow you to finish voting. Please complete your voting now. [Voting]

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. As the business of the meeting is now completed, I declare the meeting closed.