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Hunter Hall International Limited

December 16, 2009 2:24 pm by Dean Morel

Analysts estimates

EPS(c) PE Growth
Year Ending 30-06-10 43.7 15.5 -30.9%
Year Ending 30-06-11 51.0 13.3 16.7%

Past earnings and FUM

Current Reports

Hunter Hall’s funds are substantially ahead of their benchmarks this year. FUM up to $2B as of Nov 24, fund bonuses are up, [update: as per comment below, HHL's bonuses are still in red despite being up $10M in five months], sees profit and dividend up 10% over 2009. I am unsure what profit Peter Hall was referring to. He said net after tax profits up by at least 10% over 2009. Which did he mean?

  1. The net profit of $1.4M or 5.3cents due to the $12.2M markdown of financial instruments.
  2. Profit attributable to HHL shareholders of $7.4M or 27.55cents
  3. Morningstar’s normalised 63.2cents
  4. Profit from investment management of $15.5M

Summary

Super quick value check. Dividend of $0.5 is an 8.4% return to SMSFs on current price of $6.85. That’s not a screaming bargain anymore, but Hunter Hall do appear to be a quality team.

HUnter Hall VGT Number One

Add in the high probability that FUM will¬†trend up and dividends will at some point hit new peaks, then the price is fair to a little discounted. If you’re after a ten bagger then HHL isn’t for you, but you should check their fund holdings as these guys seem good at spotting excellent opportunities.

Disclosure: Long HHL

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7 Comments »

  • West Wind said:

    Went to the AGM. Peter Hall indicated both net after tax profit and dividends will increase by at least 10%. Looks like most of this will be due to increased FUM and to a lesser extent reduced costs. The total performance fees are still well out of the money at minus $39.502m on 24 Nov 2009(compared with minus $49.838M at 30 June 2009). However, 2 of the smaller funds are at the point of earning performance fees (GDG and IEF)

    Tried to get a commitment to more regular reporting of performance fee figure but only got a “we’ll look into it”. This is the main indicator of outperformance.

  • Dean Morel said:

    Thanks West Wind. I’ve been watching a few of the videos from the AGM today. HH appear to be switched on and clicking internally, their ethical nature is a plus for me. I may compile a record of the performance fees as I’m still not exactly sure when revenue is recognised or how fast the performance fee can change, besides $10M in five months. $5 had so much MOS that I never did get around to some details.
    Catch The Wind appears worthy of more research. One of the great things about having IB as a broker is that buying international shares is so easy.
    Steven Glass’ rationale for buying Biota was interesting. Completely different from my own.

  • West Wind said:

    Dean

    Further to your comments re performance fees, I tried to track them but they are a bit of a black box. You need special software to keep tabs on it. HHL admin can see it every day but only release data on it 4-5 times a year. I think it should be released on a monthly basis with their monthly trust updates. The fees are payable every 6 months, provided the individual trust has exceeded the previous high water mark and made a profit in that 6 months. The performance fee is split 50:50 between the relevant HHL analyst and shareholders.

    The format on AGM day was good with the AGM in the morning and an investment seminar in the afternoon. Questions were welcomed. There was an interesting discussion on the lack of direct investments in China, with HHL avoiding them because of concern on business ethics. Of the various company presentations made, I thought the Biota one was the most impressive.

  • Dean Morel said:

    Thanks West Wind. I did start go work through the Annual reports yesterday to try and get a handle on the performance fees, but didn’t get far. My annoyance at Australian wealth management once again over whelmed me. If the likes of Bruce Berkowitz at Fairholme only charges a flat 1%, why can’t Australian fund managers do the same? Perhaps it’s a size thing, though Berkowitz hasn’t always had a $10B fund. I think there needs to be a revolution in Australian funds management, with 1-1.5% fees and no performance fees the norm. Throw in centralised and easily accessible reporting so investors can clearly see and compare the performance of fund managers and funds will flow to those who can add alpha. As funds management is probably the next industry I’ll work in I probably shouldn’t say anything to upset the incumbents. At any rate what definitely needs to be addressed is the multiple layers of fees than can add up to 6% being gobbled annually by the industry.

    Once again, thanks a lot for you comments West Wind, much appreciated. I might try to make it to the AGM next year.

  • West Wind said:

    Hi Dean

    Have to acknowledge that I am a share holder and want to see HHL do well. On that basis I would not like to see their fees reduced. At the AGM, management discussed that they were at the high end of the spectrum but justifed the position on the basis that according to Morningstar data, HHL’s major trust, the Value Growth Trust ranks number one out of 1058 managed funds registered in Australia that have a 15-year track record. This is based on its annual compound rate of growth of 16% per annum for the 15 years up to October 2009. They advised that their management fee of 1.6% sits just behind Platinum Managements rate and they don’t appear to have had too much objection to it.

    Their outperformance over the 15 years has been 10.8%pa against the MSCI World Total Return Index. They use this international benchmark as it is a global trust, but also rate it against the All Ords Acumm Index where its outperformance has averaged 5.9%pa. More recent performance has been flat against AOAI due to rising AU$. So on that basis the high management fee is probably justifiable.

    In regard to the performance fee of 20% of profits above the benchmark, this can be large but is pretty common for the industry. As mentioned before this is split 50:50 between the analyst and shareholders. I thought this was pretty generous for the analysts, but if you want good analysts, I suppose you have to pay – and it certainly motivates them to come up with the right selections.

    I certainly believe that trusts that are index huggers should charge significantly less, as the index funds do, but if a trust can consistently add alpha you must be prepared to pay a premium. I am certainly not in favour of trailing fees and exorbitant entry and exit fees.

    Regards

    West Wind

  • West Wind said:

    Re Performance Fees

    Apologies – HHL performance fees are 15% of profits above AOAI

  • Dean Morel said:

    Thanks West Wind. Merry Christmas to you and all.

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