Fiducian Portfolio Services announces growing operating cashflow (ASX: FPS)

I bought shares in Fiducian Portfolio Services a couple of weeks ago because, based on a conservative discounted cashflow valuation, I believed their shares were undervalued. I’m now adding Fiducian Portfolio Services to the Hypothetical Sample Ethical Portfolio, with the caveat that 10% of the profits of Fiducian should be donated to charity, because Fiducian is not a particularly ethical investment. The hidden report contains a discussion of the ethics of investing in Fiducian.

Fiducian has a network of financial advisers: some are franchisees and some are employees. This network is responsible for most of the funds invested in their boutique funds, which bring in about 70% of the company’s revenues. Although their boutique funds are not stand-outs, they have generated reasonable returns for investors over the long term.

In the hidden report, I considered the strong, long-term record of the parent company:

“In 10 years Fiducian has generated $41.47 million of cash from capital expenditure of $9.05 million, that is, $4.58 for every $1 spent… The company has also paid $22.8 million in dividends to share holders.”

I offered a discounted cashflow model that suggested the shares were worth buying at below $1.20 (they are still $1.18 at the time of writing). However, that cashflow model assumed free cashflow of $3.8 million for FY 2014. It now seems almost certain that the company will exceed this for FY 2014, because the operating cashflow in the quarter to September 2013 was $1.8 million. This indicates I have probably  underestimated the company. I’m content with this state of affairs, as I aim to make conservative estimates of the value of a business, so as to incorporate some “margin of safety.”

To read a deeper description of the business, a discussion of the companies strengths and weaknesses, a history of FUM and my notes on the board of directors, sign up to the Newsletter and receive my blog post on Fiducian Portfolio Services direct to your inbox.

The Author owns shares in Fiducian Portfolio Services. Nothing on this website is advice, ever. This post is for entertainment (and for my own reference!)


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