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."
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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!)