Banking royal commission ‘created turning point’ for Centrepoint

Banking royal commission ‘created turning point’ for Centrepoint

Date of Report: Market close on Tuesday, 12th April
ASX: CAFPrice: $0.265

52 Week Range: $0.205 - $0.300

Market Cap: $51.90M

Sector: Diversified Financials

Every second week we invite a leading fund manager to present at The Insider: Meet the Fund Manager. In December 2021, Joseph Constable, from HGL Limited, selected Centrepoint Alliance as one of his three favourite stocks, noting the company has successfully pivoted to a new business model after the banking royal commission in 2017.

3 December, 2021

2 March, 2022

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Diversified financial services provider Centrepoint Alliance didn’t escape the banking royal commission unscathed, but HGL Limited’s Joseph Constable says its tribulations created a great investment opportunity.

The company – which provides financial advice, lending and investment management services – was hit with a number of financial advice claims in the wake of commissioner Kenneth Hayne’s gruelling inquiries into misconduct within the industry.

Although Centrepoint did not face a reckoning on par with that handed down to rivals at NAB and AMP, Mr Constable noted it was enough to send the company’s institutional investors barrelling towards the exits.

It also triggered a redesign of the company’s business model. Rather than relying on commission revenue earned by financial advisers, Centrepoint instead began charging those advisers licence and service fees.

“Because of all of these changes and the advice claims made against them, Centrepoint became temporarily loss-making,” Mr Constable said.

“During this period, there was a massive flight of institutional investors and the price fell dramatically.

“We did our work, we met with management and the board, and we believed there was still considerable value in the company given its superior group of high-rated advisers who, from our general research and interviews with customers, had great reputations.”

After these meetings, Mr Constable said HGL Limited felt comfortable taking a stake in the business. Since then, he added, Centrepoint has completed its switch to fee revenues, returned to profitability and even began to pay dividends.

More recently, Centrepoint has sought to bolster its growth through its acquisition of ClearView’s wealth management businesses, which it completed in November 2021.

Centrepoint Alliance CEO John Shuttleworth described the purchase as a “transformational acquisition” for the company.

“ClearView, the life insurance company, had a financial advice business that consisted of ClearView Financial Advice, Matrix, and Lavista – their self-licensed business. They made the strategic decision to divest,” Mr Shuttleworth said.

“It was a reverse inquiry, where they approached us as a potential suitor for that business. What it’s done is, it’s delivered real scale and efficiency.”

Notably, Mr Shuttleworth said, the acquisition grew the company’s licensed adviser numbers from 315 to 511 (as at December 2021) while simultaneously improving the business’s cost-to-income ratio.

Given the size of the financial services industry, Mr Shuttleworth said Centrepoint now has the potential to further diversify its offering to create new revenue streams.

At present, the company is looking to expand the services it offers to financial advisers and develop its own technology solutions to some of the problems pervading the industry.

Click here to view more videos from Joseph Constable’s  Meet the Fund Manager’ session, or click here to view the full ‘The Insider: Meet the CEOs’ session.

The CEOs of all the companies chosen as Fund Manager favourite stocks are invited to present at our Meet the CEO series. Reach does not assume responsibility for the accuracy or completeness of any information provided, and the views expressed are not reflective of Reach Markets position.

Any advice contained within this presentation is general advice and does not consider your personal circumstance, you should consider whether it’s appropriate for you.

The information we are giving you is for educational purposes only. “Investing is about understanding your risk” and every time you invest in the share market there is a risk of loss.

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The CEOs of all the companies chosen as Fund Manager favourite stocks are invited to present at our Meet the CEO series. Reach does not assume responsibility for the accuracy or completeness of any information provided, and the views expressed are not reflective of Reach Markets position.
Any advice contained within this presentation is general advice and does not consider your personal circumstance, you should consider whether it’s appropriate for you.
The information we are giving you is for educational purposes only. “Investing is about understanding your risk” and every time you invest in the share market there is a risk of loss.