STOCKBROKING is widely perceived to be a lucrative trade, and that is certainly true for the smarter operators, but what is even more interesting is the highly varied performance of major broking firms in Perth.
STOCKBROKING is widely perceived to be a lucrative trade, and that is certainly true for the smarter operators, but what is even more interesting is the highly varied performance of major broking firms in Perth.
Euroz Securities, the sixth largest Perth-based firm ranked by number of advisers, is clearly the top firm when ranked by financial performance.
It has 36 advisers, according to the WA Business News Book of Lists (see page 20) but unlike other broking firms in Perth, Euroz has a major focus on servicing institutional investors across Australia rather than local retail investors.
Its corporate finance division is also larger than most, and will be aiming to have a bigger impact this year following the recent recruitment of two seasoned campaigners – Maurice Argento and Brian Beresford – who were most recently at PwC but spent most of the past decade at Mainsheet Corporate and GEM Consulting respectively.
Their recruitment follows last year’s unexplained exit of corporate finance director Karl Paganin.
Other distinctive aspects of Euroz’s strategy are its commitment to in-house research, and its early move into funds management, via Ozgrowth Ltd and Westoz Investment Company. Overall, the group has funds under management of $313 million.
These factors have combined to make Euroz consistently profitable, in absolute terms and relative to its peers (see table above).
In the year to June 2010 it generated revenue of $76 million and a net profit of $26.3 million, putting it well ahead of all local competitors.
The latter figure was bolstered by one-off valuation gains, but even using the ‘normalised’ profit of $16.2 million, it was unmatched.
The group’s impressive performance continued in the half-year to December 2010, in which it achieved an unaudited net profit of $18.4 million.
Executive chairman Peter Diamond said the half-year results demonstrated strong trading across both its securities and funds management business.
Patersons Securities remains by far the largest broking firm in Perth, with 138 advisers in WA and 300 nationally.
Its growth has been helped by the absorption in recent years of competitors Tolhurst and Montagu, and last year’s recruitment of a team of 13 advisers from RBS Morgans in East Perth – much less than the 30 or so advisers Patersons initially had been hoping to lure.
Having bought naming rights to the former Subiaco Oval, Patersons’ latest strategic move was an alliance with Goldfields Credit Union, which it will use as a platform to offer a wider range of services.
While focused on growth, Patersons has not achieved the same profitability as Euroz. It generated total revenue of $146.7 million and net profit of $6.7 million in the year to June 2010.
Hartleys has become the second-largest broking firm in WA with 44 advisers. Writing in its latest annual report, chairman John Featherby said the firm’s primary drivers continue to be its retail, institutional and corporate finance divisions.
Together, they generated revenue of $49.7 million for the business and a net profit of $9.6 million last year.
DJ Carmichael & Co has almost the same number of investment advisers as Hartleys but has consistently struggled to deliver strong financial results. In the year to November 2009 it generated revenue of $11.5 million and posted a small loss.
DJ’s alliance with WH Ireland had been touted as the key to lifting its performance, but in the past year the UK finance group has reduced its stake to a minority shareholding.
The firm has recruited experienced finance executive Mark Ceglinski to bolster its corporate department as it seeks to rebuild.
Blackswan Equities is a relatively new entrant to the market, having opened for business in May 2009 under the leadership of former Macquarie Equities and Porter Western directors Tim and Simon Lyons.
With 20 advisers, it is the eighth largest broking firm in Perth and has also carved a presence in the corporate finance sector, with a lead role in 11 transactions worth $97 million last financial year. In its first full year of trade, it generated revenue of $9.6 million and net profit of $3.2 million.
Argonaut is a relatively small firm, with 13 advisers and 41 staff, but has always had a strong corporate advisory profile, for both capital raisings and M&A work.
Led by chairman Charles Fear and managing director Eddie Rigg, the firm also has an established presence in funds management.
Combined, these factors enabled Argonaut to generate total revenue of $23.7 million and net profit of $7.2 million in the year to June 2010.
Macquarie Private Wealth and Bell Potter, which are among the most active managers of equity capital raisings in WA, lead the list of national firms with a large presence in Perth.
RBS Morgans is another national firm looking to bolster its position in WA, following last year’s attempt by Patersons to attract its entire Perth team.
Describing itself as the largest retail-based advisory group in Australia, Morgans has 15 retail advisers, one corporate adviser and two research analysts operating from new premises in central Perth.
“The appointment of a corporate adviser and a resources analyst were in line with our commitment to establish a more significant presence in WA,” state manager Mark Pugsley told WA Business News.
The firm had a lead role in only a handful of WA transactions last year but nationally managed about 45 capital raisings worth $900 million, and is looking to be more active in WA following its recent appointments.
Other firms with a growing presence include CPS Securities, which raised more than $100 million for clients in 2009 and 2010, and Minc Stockbroking, which opened a second office in Bunbury last year.
These and other firms have been helped by the disappearance of firms Hogan Stockbroking, Stripe Capital, Kirke, Tolhurst and Montagu.
“During 2010 we continued to see new firms come to Perth and smaller firms re-equip, in the normal cyclical fashion that has become so recognisable in Perth over many years,” Macquarie Capital Advisers director Craig Carter said.
“Fragmentation of the market continues to happen at the very small end. I believe given the outlook I suspect there will be more newcomers coming to enjoy our great state, maybe even some boutique offshore brokers and banks.
“And for the larger investment banks, there will be a tendency to broaden bandwidth and engage with a greater variety of small industrial and resource companies. Its competition and it’s great for everyone.”
