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 remember the trail commission is discounted from memory using 13% or something like that so over the period of the policy they will actually receive a lot more cash amount than 57m.

It would be reasonable to assume the trail commission this year will be higher than last years given the increase in trail book last year, especially when you consider the timing, unless lapse rate has accelerated. But as time goes on this will decrease with no new policies.

Ann: Clarification of market announcement, page-30