Ferret's Stock to Watch: OFM INVESTMENT GROUP LIMITED
08:42, Wednesday, 12 July 2006
A FRIENDLY SOCIETY MAKING A LOT MORE FRIENDS
Sydney - Wednesday - July 12: (RWE Aust Business News)
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OVERVIEW
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The Ferret has nostalgic memories of the major efforts by a
number of businessmen at the beginning of the 1980's to establish the
Over Fifties Friendly Society.
Among them was a brilliant columnist called John Gilmore.
You might have asked at the time why a journalist like Gilmore,
who had a column in one of the Fairfax publications called of all things
the Bootery simply because he himself operated a chain of shoe shops in
Melbourne, was inextricably involved in the Over Fifties.
His motive was also to help older people in their financial
affairs.
What happened in his business was indicative of what small
business operators faced, so his columns were full of information for
small company owners who in those days had to fend for themselves.
The over fifties didn't receive much change either in trying to
keep a nest egg together.
So his objectives were quite realistic and his skill as a
wordsmith could stand alongside the great financial writer Tom
Fitzgerald of the Sydney Morning Herald.
But enough reminiscences, OFM Investment Group Ltd (ASX:OFM) as
it is now known, yesterday hit the big time in announcing a $42.4
million cash/shares acquisition of Century Funds Management Ltd, a
privately owned property funds management company which at June 30 had
$440 million under management.
The deal involves the balance of unverified shareholders trust
proposed to be transferred as partial consideration.
It secures key asset class high performance team plus
distribution channel.
All key senior funds management personnel will be retained.
These include Century founder John McBain, who has been
appointed as an OFM director.
Directors of OFM Investment Group said the acquisition settled
after close of business on Monday.
According to Lonsec research, Century have delivered an average
total return of 16.8 per cent pa from January 2000 to December 2005,
compared to an 11.5 per cent pa total return by the Mercer Unlisted
Index benchmark over the same period.
Chris Martin, managing director of OFM Investment Group, said
"The acquisition of Century Funds Management fits perfectly within our
corporate strategy - property is a key asset class in delivering both
income and capital growth to our core Over 50s market.
"Century's total return property investment philosophy, its
excellence in investment performance and products are an ideal addition
to our product portfolio.
"In addition, Century Funds Management and OFM share a culture
of highly personalised, investor-focused attention.
"Century's expertise and underlying profitability will also
benefit OFM through facilitating a shift away from one-off property
transaction revenues, to generation of a sustained earnings stream from
property-related activities," Mr Martin declared.
SHARE PRICE MOVEMENTS
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Shares of OFM yesterday climbed 14c to $2.40. Rolling high has
been $2.45 and low $1.88. Dividend is 11c to yield 4.58 per cent.
Earnings per share is 16.3c while p/e ratio is a handy 14.72. The
company has 52.4 million shares on issue with a market cap of $118.5
million.
Other key benefits of the acquisition for OFM include:
* Strong, strategic position in the fast growing property funds
management sector;
* Inclusion of a new, high net worth client base;
* Ability to work with the existing Century management to
broaden the distribution channels for property-backed investment product
OFM paid $26.8 million in cash and $15.6 million in OFM shares to
acquire the 100 per cent interest in Century Funds Management Ltd. The
contract provides for adjustments post settlement, but these are not
expected to be materia1.
The equity component comprises 6.84 million OFM shares at $2.28,
the 45 day VWAP as to 7 July.
OFM intends to arrange for the transfer the shares which remain
unclaimed from the unverified shareholders trust to the vendors of
Century Funds Management as part consideration.
In addition, OFM has issued 4,903,722 new shares.
The acquisition was priced on a prospective p/e ratio of 10.3
times forecast 2007 earnings and is expected to be earnings per share
positive for OFM.
Century Funds Management principals, John McBain and Jason
Huljich, (90 per cent Century shareholding), will indirectly own 9.9 per
cent of OFM, with Mr McBain holding 6.3 per cent of the OFM issued
capital and Mr Huljich 3.6 per cent. The shares will be held in escrow
for a period of up to three years.
Both Mr McBain and Mr Huljich have accepted senior roles within
OFM.
Mr McBain is appointed to the OFM Board and will become an
executive director of the Group.
Mr McBain has been the managing director of Century Funds
Management since he founded the company in 1999. Previously, Mr McBain
co-founded Hanover Group Pty Ltd, a property funds management and
advisory company, and Waltus Investments Australia Ltd, one of the first
property syndication companies in Australia.
Mr McBain has also held senior positions in several property
development and investment companies in Australia, New Zealand and the
UK.
Mr Huljich will be head of Property for the OFM Group and will
assume responsibility for OFM's existing property operations. All
Century staff will remain, establishing a sizeable Sydney office for the
OFM Investment Group.
Murray Chessell, Chairman of OFM said "I welcome John McBain to
the board and look forward to working with him and the whole of the
Century team to deliver innovative and high quality products to
a wide range of customers.
"It is pleasing to see OFM taking such effective steps towards
our goal of becoming a leading provider of financial services to our
target market."
OFM anticipates declaring a special dividend of approximately 9c
per share, in conjunction with its final dividend for 2006, post
transfer of the remaining shares within the unverified shareholders
trust.
In March OFM said earnings were on track after the company
announced a half-year profit of $4.05 million, which was in line with
expectations previously advised to the market.
As foreshadowed in August 2005, the period saw OFM continue to
invest in developing its current businesses and also invest in new
businesses.
Chris Martin, OFM's acting CEO, said "We are tracking in line
with internal expectations and we are pleased with the results
achieved."
BACKGROUND
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OFM Investment Group Ltd has its historical beginnings 22 years
ago when the Over 50s Friendly Society was established in 1980.
The friendly society business experienced dramatic growth by
providing tax advantaged friendly society bonds, principally directed at
persons over age 50 through the late 1980's and early 1990's.
An alliance with Macquarie Bank together with OFM's own
successful marketing and distribution enabled it to take advantage of
the favourable taxation treatment available for friendly society bonds
throughout that period.
OFM also undertook a number of mergers, the most notable of
which was with the Mutual Friendly Society in March 2001, resulting in
the expansion of the overall business activities and in particular
growth in assets under management.
Today, OFM is a dynamic growing funds management business, and
whilst friendly society bond products remain as its core business, it
will also soon provide investment funds in property and mortgages and
will continue to develop other investment funds for the market as
opportunities arise.
The latest acquisition
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Established in 1999, Century Funds Management arranges the
syndicated purchase of investment grade property on behalf of its
private client investors.
In December 2004, Century merged with fellow property group,
Bankminster Properties Ltd.
The Century Group currently has approximately $440 million of
funds under management.
The Group has launched 21 unlisted property funds, focusing on
the office, high and low-tech industrial and bulky goods retail sectors.
The majority of Century's property acquisitions have been in the
NSW market.
Century has recently launched its first open-ended property
fund, from the stapling of two existing closed-end funds.
There are number of features which attracted OFM to Century
Funds Management including:
* A focus on total return. Typically, property funds focus on
yield. Century has focused on maximising total returns, with capital
return a very important component;
* Active management. Each property is assessed to ascertain
where Century can add value through redevelopment;
* Performance. According to research house, Lonsec, Century have
delivered an average total return of 16.8 per cent since January 2000 to
December 2005, compared to 11.5 per cent a year total return delivered
by the Mercer Unlisted Index benchmark over the same period;
* Customer service. With minimum investments of $100,000,
Century property syndicates consist of relatively small numbers of
investors. Century investor relations takes the form of creating a
"club-like" environment for investors, where they have direct access to
a Century principal at any time. Many of the 600 or so clients have
invested in multiple Century syndicates;
* Research. Century undertakes substantial research to ascertain
the viability of the market, the property and the tenants;
* Comfort with a counter-cyclical approach. Century is
comfortable with adopting a counter cyclical approach to location or
property type, if the specific asset is attractive.
The Century senior management team of John McBain, Jason
Huljich, Ross Elsom, David Govey and Matthew Coy all have substantial
property experience gained with major companies in the Australian
property market and have all signed employment contracts with OFM.
ENDS
OFM
ofm investment group limited
