Sequoia Financial Group (ASX:SEQ) discusses FY23 results

Sequoia Financial Group Limited (ASX:SEQ) CEO and Managing Director Garry Crole discusses financial highlights, drivers of growth and revenue going forward, M&A, and cash deployment.

Abbey Phillips: I'm Abbey Phillips with the Finance News Network. We're talking today with Sequoia Financial Group (ASX:SEQ). The company is an integrated financial service group providing products and services to self-directed retail and wholesale clients and clients of third-party professional service firms. The company has a market cap of around $70m. We have with us today Mr Garry Crole, who is the Managing Director. Garry, thanks for your time.

Garry Crole: Thank you for having me, Abbey. Much appreciated.

Abbey Phillips: Garry, Sequoia is the owner of the Finance News Network and ShareCafe. So, for transparency, I thought I'd get that out of the way.

Garry, Sequoia announced their FY23 financial results on Friday. What were some of the highlights?

Garry Crole: Yeah. I think the year was a little bit of a disappointment, to be honest, Abbey. So, we had been going on a very steady trajectory of sort of 15-20 per cent growth in EBITDA and revenue, etc. But 2023 was a tough year for us. We had a drop in revenue and a drop in performance. However, it was very much a transition year, and we've really tidied up our ship and in particular the last quarter was very strong. We made a divestment of Morrisons for $40m, which has really cashed us up and given us a really strong balance sheet. And the investment over 2023 in respect to making some changes for the long-term I think are going to pay long-term dividends.

Abbey Phillips: Going forward, what segments of the group do you see driving growth and revenues?

Garry Crole: Yeah, no, I think all four. I referred to in our results presentation a new terminology that I've come up with for myself called ROME, which is what we define as return on management equity. And I've come up with four numbers, which basically are what I think is the underlying value of each of our four divisions, and I think each one of those can generate a 15 per cent return on that equity.

So, I'm very confident licensee services, which is we've got a valuation of around $40m, we think that can generate around $6m of EBITDA. Professional services is $25 million at a 15 per cent return. The Direct Division, which Financial News Network sits in, we think we can turn that around from being a loss-maker to a profit-maker, and are very confident in particularly the last quarter and the improvement in the performance of the business in the July-August period. So, I think all four. We're a diversified business and I think the secret sauce for us is that we get a little bit from a lot rather than being a single-company-focused business.

Abbey Phillips: So, Garry, during the last year you made some acquisitions. Do you expect to be active on the M&A front in the coming year?

Garry Crole: Yeah, no, absolutely. We definitely like to keep businesses, improve them and grow them, but at the same time I'm very keen to make further acquisitions and try and grow our business.

Abbey Phillips: So, Garry, what's your view on the outlook for equity markets given the tough environment we've seen in the last 18-24 months?

Garry Crole: Yeah, no, that's an interesting one. I get a variety of information from researchers all around the country and as well as our internal team at Sequoia Specialist Investments, and I think we expect the commodity market to be strong. We think interest rates have probably got a little bit more to go in respect to up. I know the most recent commentary is that many experts are calling interest rates to have topped already. We actually think they might go a little bit further, led by the US, but we do expect far less volatility. And come January, February, we're actually expecting markets to increase in turnover and then head up again. So, probably between now and Christmas we expect flat markets with a potential slight downside if we're right on the interest rate front.

Abbey Phillips: Garry, post the Morrisons transaction, Sequoia is sitting on a lot of cash. Can you give us some idea of how you plan to deploy the cash, aside from the special dividend you announced with your results?

Garry Crole: Yeah. So, no, good question, Abbey. The 4 cent fully franked dividend that we announced in the results as a special, that's about $6m. We have commenced a buyback. We made an announcement to the ASX that we bought some shares back on Friday. But certainly in respect to acquisitions, we are very keen on the professional services area, so the document business, self-managed superfund admin. In the licensee services, we're quite keen on buying advisor client books where they're retiring. And in the licensee service business, again, we're not putting it out of the question that we might be an acquirer of other larger groups in the industry.

Abbey Phillips: Garry, what is your franking credit balance currently?

Garry Crole: We've got $14m of franking credits. We're obviously paying out around $6m with this special dividend, but we expect that franking credit balance to be back towards that level or higher because in the current year we get the benefit of the Morrisons profit result, which will increase our franking credit. So, we're around $14m, probably likely to go up to $16m to $17m before the end of the year.

Abbey Phillips: Lastly, Garry, what can investors look forward to in the next six months?

Garry Crole: Yeah. I think they can look forward to… Back on the momentum of positive growth, I talked about the tortoise and the hare over many years. I think we've re-shelled ourself in 2023 and we've got a much stronger shell. So, I expect us to return to growth. Revenue last year was $130m and normalised profit was around $9m. I expect that we'll go back to 15-20 per cent growth on the operating earnings and higher on revenue.

Abbey Phillips: Garry, it's been an absolute pleasure talking with you today. Thank you for your time.

Garry Crole: Thanks, Abbey, and thanks for the great work at FNN.