FIG (ASX) Ann: Clarification of market announcement

Originally posted by ReXXar ↑

Imo TC only has value to shareholders in 2 situations, 1 is they pay a dividend. If I was management and there's no growth strategy that exceeds at least 10% cost on capital, I will pay a dividend, if they declare a 1 cent tomorrow, which is about $2.4m (they still have a strong war chest and is something they can easily do), that's a 10% dividend yield. If they wind down their books and pay a dividend, shareholders will be rewarded immensely. If they don't pay a dividend and there's no growth strategy, then that TC is meaningless to shareholders unless somebody take them over. In the second scenario, that depends on how reliable those TC is, $10m commission out of $57m net TC is about 17.5% yield, so that's attractive to PE funds, if it reduces by 20% every year for next 3 years, that's about $25m, that's still higher than current market cap. In other words, if they are able to just roughly maintain their 350k customers with no other source of revenue its substantially in value.

Don't worry about TC lost in regulation, won't happen overnight. Banning grandfather commission overnight would cause a systematic shock to entire financial industry, exactly the kind of thing regulators are created to avoid. It will be gradually phased out over time, with a complete ban at least 2020 or later.

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Just to clarify that $25m is sum of the revenue from TC for next 3 years ($10m+$8m+$6.4m)

By the way I think even regulators approve St Andrews there's little chance it will go through, there doesn't seem to be any synergy Freedom can offer. Before they were going to aggressively expand St Andrew's loan protection insurance through direct selling and diversify away from life insurance, now the entire direct channel is dead. Mr Cohen who was driving the deal has also left, and takes away the valuable relationship he has in the industry, the only moat I saw in Freedom. Unless the primary reason he left was to save the St Andrews, then he did SH a great service, as his departure is very abrupt, leaving "because of reduced business activity" is purely BS imo.

Ann: Clarification of market announcement, page-28