MoneyTalks: Armytage Private’s Lee Iafrate likes these diversified fin services and infrastructure stocks
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MoneyTalks is Stockhead’s regular recap of the ASX stocks, sectors and trends that fund managers and analysts are looking at right now.
Today, we hear from Lee Iafrate, founding chairman of Melbourne-based boutique investment firm Armytage Private.
Iafrate says diversified financial services along with platforms have seen a spate of takeovers and mergers because of the Hayne Royal Commission.
“What we’ve seen in the last 6 to 12 months in Australia has been a plethora of takeovers and mergers and consolidations, and we’re likely to see this continue,” he said.
“This is the fallout from the Royal Commission. It spawned an enormous amount of corporate activities, takeovers, mergers and consolidations.”
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Iafrate said this has spilled across from platforms and tech into the wealth advisory sector.
“It stems from Hayne which has resulted in increasing compliance and the increasing operational costs for advisory firms,” he said.
“And there’s also been a significant change to the education requirement.
“So, those three things have led to substantial realignment of the wealth advisory business. The banks have sold up and gone and when the banks sell, you buy.”
Around 9,000 financial advisors have left the sector since 2018, and Iafrate reckons there’ll be less than 12,000 licensed advisors by 2022.
“And this is in a backdrop of an aging population in Australia that requires high quality advice,” he said.
“You know as well as I do when demand goes up and supply falls, what moves? Price.
“So, the price to the consumer is going to skyrocket and the advisory firms that are still left operating are going to be in for a beautiful period from about the back end of 2022, right through to 2025.
“There’s going to be this really good period for about three years where wealth advisory businesses are going to do very, very well.”
“The wealth businesses that are listed are going to experience the solid run and our tips are things like WT Financial Group ASX:WTL), a small financial planning firm. It’s just merged with Sentry Group Pty Ltd,” Iafrate said.
“It’s one that’s certainly worth looking at it, it should have a good 12-18 months.”
“The other one is Praemium (ASX:PPS), we suspect there’ll be corporate activity there,” Iafrate said.
“We feel that Centrepoint Alliance (ASX:CAF) has become the biggest listed player with the number of advisors over 1300.
“CAF has got a market cap of $30-35 million – but how long it will remain as an independent listed company? It’s a potential target.”
Other potential targets he flagged included E&P Financial Group (ASX:EP1).
“They’re sitting around the 60 odd cents level, and we suspect there could corporate activity,” Iafrate said.
“Mercury Private Equity owns 20%, so it will be interesting to see what transpires in the next three to six months.
“Then you’ve got things like Easton Investments (ASX:EAS), which is still 35-40% owned by Hub24 (ASX:HUB) – is that a bankable relationship going forward? Will they move to privatising it? Who knows, but there’s potential there.”
Then there’s another player coming out of left field in Perpetual (ASX:PCI) who have set up Perpetual Private to grow and expand the wealth advisory business.
“They’ve got a few dollars in their bank account, so things like WTL and EP1 and CAF might be of interest,” Iafrate said.
“So, quite quickly somebody like a Perpetual Private could move to practically corner the whole wealth advisory market in Australia and be the king pin.”
“These three assets, the Sydney Airport, Spark and AST have very boring consistent revenue lines over 20-30 years and these super funds like to invest in these very predictable, very reliable revenue lines and revenue streams,” he said.
“Three that we think are likely to still be targets in this space are APA Group (ASX:APA) – that’s the gas pipelines over in WA, Aurizon (ASX:AZJ), the coal and railway handler in Newcastle, which is now doing more rare earths, iron ore and also bulk commodities.
“And then the other one is Graincorp (ASX:GNC) – and it’s been a target twice already so, third time lucky.”
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