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Australian Ethical Investment

ASX:AEF
Snowflake Description

Flawless balance sheet with solid track record.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
AEF
ASX
A$163M
Market Cap
  1. Home
  2. AU
  3. Diversified Financials
2018/02/24
Company description

Australian Ethical Investment Ltd is a publicly owned investment manager. More info.


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Value

 Is Australian Ethical Investment undervalued based on future cash flows and its price relative to the stock market?

Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current share price of Australian Ethical Investment to its discounted cash flow analysis.value.

The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.

How is this discounted cash flow calculated?

  • The current share price of Australian Ethical Investment is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for it. This is similar to the price of fruit (e.g. Mangoes or Avocados) increasing when they are out of season, or how much your home is worth.

The amount the stock market is willing to pay for Australian Ethical Investment's earnings, growth and assets is considered below, and whether this is a fair price.
Price based on past earnings
Are Australian Ethical Investment's earnings available for a low price, and how does this compare to other companies in the same industry?
  • Australian Ethical Investment is overvalued based on earnings compared to the AU Capital Markets industry average.
  • Australian Ethical Investment is overvalued based on earnings compared to the AU market.
Price based on expected Growth
Does Australian Ethical Investment's expected growth come at a high price?
  • Unable to calculate PEG ratio for Australian Ethical Investment, we can't assess if its growth is good value.
Price based on value of assets
What value do investors place on Australian Ethical Investment's assets?
  • Australian Ethical Investment is overvalued based on assets compared to the AU Capital Markets industry average.
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Value checks
We assess Australian Ethical Investment's value by looking at:
  1. Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) ( Click here or on bar chart for details of DCF calculation. )
  2. Is the PE ratio less than the market average, and/ or less than the Capital Markets industry average (and greater than 0)? (2 checks)
  3. Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
  4. Is the PB ratio less than the Capital Markets industry average (and greater than 0)? (1 check)
  5. Australian Ethical Investment has a total score of 0/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
    Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (0%).

    Full details on the Value part of the Simply Wall St company analysis model.
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Discounted cash flow (Excess Returns Model)

The calculations below outline how an intrinsic value for Australian Ethical Investment is arrived at using the Excess Return Model. This approach is used for finance firms where free cash flow is difficult to estimate.

In the Excess Return Model the value of a firm can be written as the sum of capital invested currently in the firm and the present value of excess returns that the firm expects to make in the future.

The model is sensitive to the Return on Equity of the company versus the Cost of Equity, how these are calculated is detailed below the main calculation.

Note the calculations below are per share.

See our documentation to learn about this calculation.



Value of Excess Returns

Excess Returns = (Stable Return on equity – Cost of equity) (Book Value of Equity per share)

A$3.52 = (35.44% – 8.55%) * A$13.09)

Terminal Value of Excess Returns = Excess Returns / (Cost of Equity - Expected Growth Rate)

A$60.76 = A$3.52 / (8.55% - 2.76%)

Value of Equity = Book Value per share + Terminal Value of Excess Returns

A$73.85 = A$13.09 + A$60.76

Inputs used in model:

Stable EPS = Stable Book Value * Return on Equity
A$4.64 = A$13.09 * 35.44%
Source: Last reported Return on Equity.

Book Value of Equity per Share: A$13.09
Source: Last reported Book Value.

Expected Growth Rate: 2.76%
Source: Risk Free Rate/ 10 year Government Bond Rate in AUD.

Discount to Share Price

Value per share:
A$73.85

Current discount (share price of A$145): -96.34%



Estimate of Discount Rate

The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.

Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)

Discount rate = 8.55% = 2.76% + (0.8 * 7.24%)



Estimate of Bottom Up Beta

The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm). Note the market value of equity is used not the book value (A$162,534,850).

Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))

0.515 = 0.515 (1 + (1- 30%) (0%))

Levered Beta used in calculation = 0.8



Assumptions
  1. The risk free rate of 2.76% is from the 10 year government bond rate in AUD.
  2. The bottom-up beta is estimated by analysing other companies in the same industry.
  3. The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (7.24%) (source: Buffet).
  4. The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.

Future Performance

 How is Australian Ethical Investment expected to perform in the next 1 to 3 years based on estimates from 0 analysts?

  • Australian Ethical Investment is not covered by any analysts.
The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.

Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
Annual Growth Rate
7.1%
Expected Capital Markets industry annual growth in earnings.
Earnings growth vs Low Risk Savings
Is Australian Ethical Investment expected to grow at an attractive rate?
  • Unable to compare Australian Ethical Investment's earnings growth to the low risk savings rate as no estimate data is available.
Growth vs Market Checks
  • Unable to compare Australian Ethical Investment's earnings growth to the AU market average as no estimate data is available.
  • Unable to compare Australian Ethical Investment's revenue growth to the AU market average as no estimate data is available.
Annual Growth Rates Comparison
Analysts growth expectations
Super high growth metrics
High Growth Checks
  • Unable to determine if Australian Ethical Investment is high growth as no earnings estimate data is available.
  • Unable to determine if Australian Ethical Investment is high growth as no revenue estimate data is available.
Past and Future Earnings per Share
The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occurred. We also show the highest and lowest estimates looking forward to see if there is a wide range.
Performance in 3 years
In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
  • Unable to establish if Australian Ethical Investment will efficiently use shareholders’ funds in the future without estimates of Return on Equity.
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Future performance checks
We assess Australian Ethical Investment's future performance by looking at:
  1. Is the annual earnings growth rate expected to beat the low risk savings rate, plus a premium to keep pace with inflation?
  2. Is the annual earnings growth rate expected to beat the average growth rate in earnings of the AU market? (1 check)
  3. Is the annual revenue growth rate expected to beat the average growth rate in revenue of the AU market? (1 check)
  4. Is the annual earnings growth rate expected to be above 20%? (1 check)
  5. Is the annual revenue growth rate expected to be above 20%? (1 check)
  6. Is the Return on Equity in 3 years expected to be over 20%? (1 check)
Some of the above checks will fail if the company is expected to be loss making in the relevant year.
Australian Ethical Investment has a total score of 0/6, see the detailed checks below.

Note 1: We use GAAP Net Income Excluding Exceptional Items for our Earnings in all our calculations.

Full details on the Future part of the Simply Wall St company analysis model.

Past Performance

  How has Australian Ethical Investment performed over the past 5 years?

The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
Past earnings growth
Below we compare Australian Ethical Investment's growth in the last year to its industry (Capital Markets).
Past Earnings growth analysis
We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
  • Australian Ethical Investment has delivered over 20% year on year earnings growth in the past 5 years.
  • Australian Ethical Investment's 1-year earnings growth exceeds its 5-year average (148.8% vs 23.4%)
  • Australian Ethical Investment's earnings growth has exceeded the AU Capital Markets industry average in the past year (148.8% vs 10.1%).
Earnings and Revenue History
Australian Ethical Investment's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
Performance last year
We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
  • Australian Ethical Investment has efficiently used shareholders’ funds last year (Return on Equity greater than 20%).
  • Australian Ethical Investment used its assets more efficiently than the AU Capital Markets industry average last year based on Return on Assets.
  • Australian Ethical Investment's use of capital has not improved over the past 3 years (Return on Capital Employed).
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Past performance checks
We assess Australian Ethical Investment's performance over the past 5 years by checking for:
  1. Has earnings increased in past 5 years? (1 check)
  2. Has the earnings growth in the last year exceeded that of the Capital Markets industry? (1 check)
  3. Is the recent earnings growth over the last year higher than the average annual growth over the past 5 years? (1 check)
  4. Is the Return on Equity (ROE) higher than 20%? (1 check)
  5. Is the Return on Assets (ROA) above industry average? (1 check)
  6. Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
Australian Ethical Investment has a total score of 5/6, see the detailed checks below.

Note: We use GAAP Net Income excluding extraordinary items in all our calculations.

Full details on the Past part of the Simply Wall St company analysis model.

Health

 How is Australian Ethical Investment's financial health and their level of debt?

A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).

The boxes below represent the relative size of what makes up Australian Ethical Investment's finances.

The net worth of a company is the difference between its assets and liabilities.
Net Worth
  • Australian Ethical Investment is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
  • Australian Ethical Investment's cash and other short term assets cover its long term commitments.
Balance sheet
This treemap shows a more detailed breakdown of Australian Ethical Investment's finances. If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
Assets
Liabilities and shares
The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
  • Low level of unsold assets.
  • Australian Ethical Investment has no debt, it does not need to be covered by short term assets.
Historical Debt
Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.

The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.

If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
  • Australian Ethical Investment has no debt.
  • Australian Ethical Investment has not taken on any debt in the past 5 years.
  • Australian Ethical Investment has no debt, it does not need to be covered by operating cash flow.
  • Australian Ethical Investment has no debt, therefore coverage of interest payments is not a concern.
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Financial health checks
We assess Australian Ethical Investment's financial health by checking for:
  1. Are short term assets greater than short term liabilities? (1 check)
  2. Are short term assets greater than long term liabilities? (1 check)
  3. Has the debt to equity ratio increased in the past 5 years? (1 check)
  4. Is the debt to equity ratio over 40%? (1 check)
  5. Is the debt covered by short term assets? (1 check)
  6. Are earnings greater than 5x the interest on debt (if company pays interest at all)? (1 check)
  7. Australian Ethical Investment has a total score of 6/6, see the detailed checks below.


Full details on the Health part of the Simply Wall St company analysis model.

Dividends

 What is Australian Ethical Investment's current dividend yield, its reliability and sustainability?

Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
Annual Dividend Income
Dividend payments
1.79%
Current annual income from Australian Ethical Investment dividends.
If you bought A$2,000 of Australian Ethical Investment shares you are expected to receive A$36 in your first year as a dividend.
Dividend Amount
Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account? It is up there with the best dividend paying companies?
  • Australian Ethical Investment's dividend is below the low risk savings rate (3%).
  • Australian Ethical Investment's dividend is below the markets top dividend payers (4.92%).
Annualized Historical and Future Dividends
It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.

We also check to see if the dividend has increased in the past 10 years.
  • Dividends per share have been volatile in the past 10 years (annual drop of over 20%).
  • Dividends per share have increased over the past 10 years.
Current Payout to shareholders
What portion of Australian Ethical Investment's earnings are paid to the shareholders as a dividend.
  • Dividends paid are covered by net profit (1.7x coverage).
Future Payout to shareholders
  • Insufficient estimate data to determine if a dividend will be paid in 3 years and that it will be sustainable.
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Income/ dividend checks
We assess Australian Ethical Investment's dividend by checking for:
  1. Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
  2. Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
  3. Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
  4. If they have paid a dividend for 10 years has it increased in this time? (1 check)
  5. How sustainable is the dividend, can Australian Ethical Investment afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
  6. Australian Ethical Investment has a total score of 2/6, see the detailed checks below.


Full details on the Dividends part of the Simply Wall St company analysis model.

Management

 What is the CEO of Australian Ethical Investment's salary, the management and board of directors tenure and is there insider trading?

Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
CEO
Phil Vernon, image provided by Google.
Phil Vernon
COMPENSATION A$674,259
TENURE AS CEO 8.2 years
CEO Bio

Mr. Phillip A. Vernon, also known as Phil, BEc, MCom, MBA, FCA, FAICD is the Managing Director at Australian Ethical Investment Ltd. since July 2010 and serves as the Chief Executive Officer since December 2009 and Executive Director since July 27, 2010. He provides overall leadership and strategic direction to the company including acting as a direct liaison between the Board and the senior management team. Mr. Vernon is also a Director of Australian Ethical Superannuation Pty Limited and Australian Ethical Foundation Pty Limited. He is a Director of the Responsible Investment Association of Australia. Mr. Vernon is also a Director of Environmental Foundation and the Chairman Beyond Zero Emissions. He is a Fellow of the Australian Institute of Company Directors and the Australian Society of Certified Practicing Accountants. Mr. Vernon has a vast experience in financial services covering funds management, superannuation, corporate governance and industry regulation. He holds the FCA and FAICD designations. Mr. Vernon also holds B.Ec., M.Com., and M.B.A. degrees.

CEO Compensation
  • Phil's compensation has been consistent with company performance over the past year.
  • Phil's compensation is higher than average for a company of this size and profit level.
Management Team Tenure

Average tenure of the Australian Ethical Investment management team in years:

4.1
Average Tenure
  • The tenure for the Australian Ethical Investment management team is about average.
Management Team

Phil Vernon

TITLE
CEO, MD & Executive Director
COMPENSATION
A$674K
TENURE
8.2 yrs

David Macri

TITLE
Chief Investment Officer
COMPENSATION
A$513K
TENURE
6 yrs

Tom May

TITLE
General Counsel & Company Secretary
COMPENSATION
A$276K

Karen Hughes

TITLE
Head of Risk & Compliance
COMPENSATION
A$46K
TENURE
0.8 yrs

Stuart Palmer

TITLE
Head of Ethics
COMPENSATION
A$307K

Allyson Lowbridge

TITLE
Chief Customer Officer
COMPENSATION
A$262K
TENURE
1.3 yrs

Fiona Horan

TITLE
Head of People and Culture

Rob Plow

TITLE
Head of Strategy and Execution
Board of Directors Tenure

Average tenure of the Australian Ethical Investment board of directors in years:

4.6
Average Tenure
  • The tenure for the Australian Ethical Investment board of directors is about average.
Board of Directors

Steve Gibbs

TITLE
Chairman
COMPENSATION
A$109K
TENURE
5 yrs

Phil Vernon

TITLE
CEO, MD & Executive Director
COMPENSATION
A$674K
TENURE
7.6 yrs

Kate Greenhill

TITLE
Non-Executive Director
COMPENSATION
A$91K
TENURE
5 yrs

Mara Bun

TITLE
Non-Executive Director
COMPENSATION
A$79K
TENURE
5 yrs

Michael Monaghan

TITLE
Non-Executive Director
TENURE
0.4 yrs

Julie Orr

TITLE
Non-Executive Director
Recent Insider Trading
  • More shares have been bought than sold by Australian Ethical Investment insiders in the past 3 months.
Who owns this company?
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Management checks
We assess Australian Ethical Investment's management by checking for:
  1. Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
  2. Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
  3. Is the average tenure of the management team less than 2 years? (1 check)
  4. Is the average tenure of the board of directors team less than 3 years? (1 check)
  5. Australian Ethical Investment has a total score of 0/6, this is not included on the snowflake, see the detailed checks below.


Note: We use the top 6 management executives and board members in our calculations.

Note 2: Insider trading include any internal stakeholders and these transactions .

Full details on the Management part of the Simply Wall St company analysis model.

Company News

External News
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Simply Wall St News

Is Australian Ethical Investment Ltd (ASX:AEF) A Sell At Its Current PE Ratio?

Check out our latest analysis for Australian Ethical Investment Breaking down the Price-Earnings ratio ASX:AEF PE PEG Gauge Feb 8th 18 The P/E ratio is a popular ratio used in relative valuation since earnings power is a key driver of investment value. … By comparing a stock’s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the company’s earnings. … Formula Price-Earnings Ratio = Price per share ÷ Earnings per share P/E Calculation for AEF Price per share = A$133.01 Earnings per share = A$2.7 ∴ Price-Earnings Ratio = A$133.01 ÷ A$2.7 = 49.3x On its own, the P/E ratio doesn’t tell you much; however, it becomes extremely useful when you compare it with other similar companies.

Simply Wall St -

With -9.5% EPS Drop, Should Australian Ethical Investment Ltd's (ASX:AEF) Recent Track Record Be A Cause Of Concern?

Check out our latest analysis for Australian Ethical Investment Was AEF's recent earnings decline worse than the long-term trend and the industry? … Australian Ethical Investment's most recent twelve-month earnings is A$2.9M, which compared to the prior year's level, has dropped by -8.22%. … You should continue to research Australian Ethical Investment to get a more holistic view of the stock by looking at: 1.

Simply Wall St -

Is Australian Ethical Investment Ltd (ASX:AEF) Overpaying Its CEO?

Phil Vernon took the helm as Australian Ethical Investment Ltd's (ASX:AEF) CEO and grew market cap to AUDA$146.84M recently. … Today we will assess Vernon’s pay and compare this to the company’s performance over the same period, as well as measure it against other Australian CEOs leading companies of similar size and profitability. … Considering AEF's size and performance, in terms of market cap and earnings, it appears that Vernon is paid on a similar level to other Australian CEOs of small-caps, on average.

Simply Wall St -

Before You Buy Australian Ethical Investment Ltd's (ASX:AEF), You Should Consider This

View our latest analysis for Australian Ethical Investment What does AEF's beta value mean? … AEF's beta implies it may be a stock that investors with high-beta portfolios might find relevant if they wanted to reduce their exposure to market risk, especially during times of downturns. … An asset-heavy company tends to have a higher beta because the risk associated with running fixed assets during a downturn is highly expensive.

Simply Wall St -

Company Info

Map
Description

Australian Ethical Investment Ltd is a publicly owned investment manager. The firm launches and manages equity, fixed income, and balanced mutual funds for its clients. It invests in the public equity and fixed income markets across the globe. The firm invests in clean energy, sustainable products, medical solutions, innovative technology, responsible banking, healthcare, recycling, energy efficiency, education, and aged care. It does not invest in coal, coal seam gas, oil, weapons, tobacco, logging, exploitation, gambling, human rights abuses, and harmful products. Australian Ethical Investment Ltd was founded in 1986 and is based in Sydney, Australia.

Details
Name: Australian Ethical Investment Ltd
AEF
Exchange: ASX
Founded: 1986
A$162,534,850
1,120,930
Website: http://www.australianethical.com.au
Address: Australian Ethical Investment Ltd
130 Pitt Street,
Level 8,
Sydney,
New South Wales, 2000,
Australia
Listings
Exchange Symbol Ticker Symbol Security Exchange Country Currency Listed on
ASX AEF Ordinary Shares Australian Securities Exchange AU AUD 17. Dec 2002
CHIA AEF Ordinary Shares Chi-X Australia AU AUD 17. Dec 2002
Number of employees
Current staff
Staff numbers
30
Australian Ethical Investment employees.
Industry
Asset Management and Custody Banks
Diversified Financials
Company Analysis and Financial Data Status
Area Date
Company Analysis updated: 2018/02/24
Last earnings update: 2017/12/31
Last annual earnings update: 2017/06/30


All dates in UTC. All financial data provided by Standard & Poor’s Capital IQ.

Unless specified all financial data is based on a yearly period but updated quarterly. This is known as Trailing Twelve Month (TTM) or Last Twelve Month (LTM) Data. Learn more here.