Yesterday, stockbroking firm Bell Financial Group Ltd (ASX: BFG) announced its financial results for first half of 2016 and the market responded badly. The share price closed at $0.69, down 15.3% for the day having risen more than 30% in the week prior to the release.
Revenue rose 2.0% to $84.7 million but earnings-per-share (EPS) were down 4.3% to 2.2 cents. The company increased its interim dividends to 1.75 cents up from 1.5 cents last year and the stock currently trades on a substantial fully franked dividend yield of 6.9%.
Bell had $48.3 million in company cash at 30 June 2016 and no debt except for that used to fund its margin lending business. Finance income, which is largely generated form margin lending, rose 14.2% to $7.2 million for the period. Bell is the only non-bank margin lender in Australia and has never experienced a bad debt thanks to its conservative lending requirements.
The group owns 56.6% of the Bell Direct online broking business and the platform has been awarded Best Online Broker by the Australian Financial Review several times. The division seems to be growing strongly based on a 57.4% increase in profit attributable to non-controlling interests during the half-year but still only makes a small contribution to the group.
Bell has two reporting segments based on client type, Retail and Wholesale. Retail generates profit margins of around 5% compared with 15% for Wholesale, but is responsible for about 80% of group revenue. For the first half of 2016, Retail revenue rose 1.1% to $67.3 million but profit fell 11.9% to $3.3 million whereas Wholesale revenue increased 5.9% to $17.4 million and profit was up 24.4% to $2.7 million.
CEO Colin Bell said that the company has had a good start to the second half of the year, recording a profit before tax (PBT) of $3.7 million in July. For the period from January to July, PBT is tracking 42% ahead of last year and it looks like the second half of 2016 will be stronger than the first.
Bell has a market capitalisation of $184.4 million and so is cheap based on current earnings and dividends. However, the shares are up just 2.2% over the last five years and down 70.2% since the group was listed at the end of 2007. Stock broking is a competitive industry that is heavily exposed to market cycles and so in my view, Bell's current share price is probably about right.
