Spring has grown steadily by expansion since listing in March 2015. The Financial Choice acquisition is Spring’s second major deal of 2017: the first was a revenue and equity-based JV with residential property manager Tessa Residential, to provide property management, letting agency and resale services to Spring’s clients.
Spring Financial Group Limited (publisher of ShareCafe) reported its half-year profit to the Australian Securities Exchange (ASX) this week, as well as announcing an acquisition that will boost the company’s funds under advice (FUA) by more than 60%, to about $850 million.
For the half-year to December 2016, Spring lifted revenue by 14% to $6.1 million, with receipts from customers up almost 18% to $5.6 million. But net profit came in 13% lower than the December 2015 half, at $702,000, with cost increases associated with expansion having an impact. Operating expenses were up by 24.5% on the December 2015 half, but that rate of growth slowed to just 4.8% if based on the six months to 30 June 2016. A fully franked interim dividend of 0.5 cents a share was declared.
Spring is an Australian retail financial services company, offering financial education, financial planning, investment advice (specialising in real estate), insurance and tax advisory services, and direct share trade and execution services, mainly to self-managed superannuation funds (SMSFs).
Along with the interim report, Spring announced it had entered into an agreement to buy specialist superannuation and retirement planner, Financial Choice Pty. Ltd., with the latter’s founder and CEO, Russell Medcraft, to join the Spring executive team.
Established more than 20 years ago Financial Choice provides financial advice and dealing services, including SMSF advice and administration, to retail and wholesale investors and SMSF trustees from offices in Sydney and Melbourne. Its client base includes high-value SMSFs plus more than 15,000 retail clients. Spring said the Financial Choice acquisition would boost its assets under advice by $325 million to about $850 million.
Financial Choice is expected to contribute $1.8 million a year of recurring revenue, and $1.2 million a year of earnings before interest, tax, depreciation and amortisation (EBITDA). The company said this input could lift its full-year FY16 net profit by about 52%, to about $2.4 million, even before considering the revenue synergies that it should entail. Spring will pay an initial amount of $2.5 million for Financial Choice, by way of cash and vendor shares, to be issued at 20 cents a share.
A second deferred payment of $1.3 million will be paid in October 2017, while subject to future performance hurdles, further performance-based payments of up to $1 million may be payable to the vendor in late 2018.
Medcraft will join Spring in an executive capacity after the settlement of the sale, to assist with the merger of the business and operations of Financial Choice with Spring FG. He will bring with him a 30-year track record of success in the financial services industry and his professional team, which will boost the advisory and administration team at Spring.
For Spring, the Financial Choice purchase both augments and diversifies the revenue and asset profile, and provides a large client base to leverage. “Financial Choice also has a diverse client base with a concentration of around 2,000 high-value clients augmented with about 15,000 retail account holders from historical corporate super programs,” said Keith Cullen, Spring Financial Group founder and managing director. “We see a significant opportunity to broaden services to this group and unlock value for them and from them.”
Spring has grown steadily by expansion since listing in March 2015. The Financial Choice acquisition is Spring’s second major deal of 2017: the first was a revenue and equity-based JV with residential property manager Tessa Residential, to provide property management, letting agency and resale services to Spring’s clients. The joint venture will initially focus on its clients’ Brisbane portfolios, expanding to Melbourne and Sydney assets over the next 12-18 months. Under the arrangement Spring will receive referral fees, a recurring revenue share and a retained equity interest in the property management contracts it introduces to the joint venture.
January also saw the opening of Spring’s first retail branch, in the Melbourne CBD, which will be operated as a company store (as well as being the Victorian state office), hosting regular client seminars and conducting franchisee recruitment and development for the state. The opening of the first retail branch signals the commencement of a planned nationwide rollout of between 80–100 predominantly franchised branches over the next five to eight years. Spring’s modelling suggests minimum revenues of $1 million a year per franchised branch, with a pre-tax profit contribution per branch of a minimum of $350,000 a year.
Last year Spring began the rollout of its “fintech” initiatives, with the launch of its personal wealth platform Spring 247 and its SMSF setup, admin and investing platform mysuper247.com.
Spring 247 enables clients to consolidate their lifestyle and investment assets and transactional data into a single dashboard: clients can link their bank accounts, credit card and loans, shares, managed funds, and industry, retail or self-managed super fund assets. They may also add and obtain valuation estimates for their family home, investment properties and motor vehicles. As the system develops, it will include video conferencing and digital document sharing, enabling Spring’s clients to interact with their advisory team and receive personalised advice.
mysuper247.com offers self-directed investors world-class technology and a broad range of investment options, portfolio management tools and information and education resources. This year the momentum continues with the launch of the group’s online (personally assisted) tax return service mytax247.com, which will be released in the lead-up to the FY2017 tax season.