Equity Trustees Ltd (ASX: EQT) is a large independent provider of specialist trustee services. Across two divisions, the group specialises in responsible entity, superannuation trustee, estate planning and a range of trustee services targeting philanthropic causes.
Here are 5 reasons why I'd consider buying its shares:
- Recurring revenue streams. Responsible entity and trustee fees are an annuity style recurring revenue stream which provides EQT (as well as competitor Diversa which is owned by Onevue Holdings Ltd (ASX: OVH)) with a consistent source of income. Whilst revenue might not grow as fast as platform providers such as Praemium Ltd (ASX: PPS) and Hub24 Ltd (ASX: HUB), EQT's reliable revenue stream remains attractive.
- Favourable long term macro trends. An ageing population and a looming baby boomer inter-generational wealth transfer means that it's likely that there will be greater demand for EQT's services. Also, EQT is likely to benefit from the trend towards the consolidation of the superannuation trustee sector. EQT announced on Monday, October 23, 2017, that it had agreed a deal to be appointed trustee of the $3.2 billion Aon Master Trust.
- Conservative balance sheet. EQT has a low gearing with a debt to equity ratio of 6% which adds to its capacity to take on more acquisitions should the opportunity arise. EQT also comfortably meets its regulatory capital requirements and a consolidation of its licences has the capacity to reduce its capital requirements by a further $5m in the long term.
- Potential growth via offshore expansion. EQT's extensive domestic client base provides it with opportunities to extend these relationships offshore (particularly in Asia). The potential introduction of an Asian Funds Passport opens up EQT clients to Asia-based expansion opportunities on a longer-term basis. This could position the company well to assist domestic investment managers expand regionally.
- Valuation. At a price to earnings ratio of 24, EQT shares are not cheap, but once you start to forecast in potential growth opportunities as summarised above, then there is potential upside in its current share price.
