The booming share market has delivered strong profit growth for Perth’s major stockbroking firms, but a close analysis of their latest financial results reveals a wide variation in performance.
The booming share market has delivered strong profit growth for Perth’s major stockbroking firms, but a close analysis of their latest financial results reveals a wide variation in performance, partly reflecting big differences in how staff are paid.
Perth’s largest broking firm, Patersons Securities Ltd, paid about 62 per cent of last year’s total revenue to its staff in the form of salaries and bonuses.
In contrast, staff expenses at Euroz Ltd, which is listed on the Australian Securities Exchange, are a much lower 33 per cent of total revenue.
There is a corresponding variation in their profit ratios.
Euroz’s net profit of $22.1 million for the year to June 2007 was equivalent to 34.6 per cent of its revenue. Most of this profit is paid to directors and employees in the form of dividends.
Conversely, Patersons’ $9.3 million net profit was equal to just 9 per cent of its revenue.
Hartleys Ltd sits in the middle.
It lifted net profit by 35 per cent last year to $11.6 million, which equated to 22.5 per cent of its revenue while its staff expenses were about 57 per cent of total revenue.
Another Perth-based broking firm, DJ Carmichael & Co, had a lower profit ratio than its larger competitors.
Carmichael’s parent company, WHI Australia Pty Ltd, reported a profit of $0.9 million for the year to November 2006 on revenue of $14.6 million.
Carmichael director Rod Beeton said the firm achieved a substantially increased profit in the past 12 months but was unable to provide details.
All of the broking firms were helped by increased trading and expanded capital raising activity.
Patersons has achieved two years of strong profit growth since 2005, when its earnings were static despite lifting its trading revenue.
It has achieved improved profits despite having to lift its focus on compliance after encountering legal issues in its Canberra office.
Euroz lifted net profit by 31.9 per cent, its fourth successive increase in profit since the firm was established by a breakaway group from Patersons.
Hartleys has also had a great run since Richard Simpson led a management buyout of the firm.
Mr Simpson is one of 40 employee shareholders who have reaped big profits since they bought the struggling firm four years ago, on October 17 2003.
“The business has really transformed; that has been the real driver,” he told WA Business News.
Hartleys has expanded its retail broking team to 45 dealers and also built a team of five institutional dealers, who have focused on building links with investors in Europe and North America.
He believes that has enabled Hartleys to originate much larger capital raisings deals. Instead of being restricted to $5 million to $20 million deals, it is now doing deals between $50 million and $100 million.
The establishment and growth of its institutional dealing team has led Hartleys to move into a market space that was dominated by Euroz, which has always focused primarily on servicing institutional clients.
Patersons also has an institutional dealing team on the east coast, reflecting its national focus. It has 156 dealers working from nine locations, whereas Hartleys and Euroz work from one office in Perth.
Mr Simpson believes Hartleys’ one-office structure is an asset, as it helps to keep costs low and makes management and compliance easier.
“You’ve got a much better feel for the organisation,” he said.
Unlike many other broking firms, Mr Simpson said Hartleys has no plans to move into funds management.
“We believe there is an inherent conflict in that,” he said.
“We are an intermediary, we are good at that and we want to continue with what we know well.”