Generation Development Group: A record quarter

About the author:

Richard Coles
Author name:
By Richard Coles
Job title:
Senior Analyst
Date posted:
14 April 2021, 5:00 PM
Sectors Covered:
Insurance, Diversified Financials

  • Generation Development Group (ASX:GDG) has released its FUM update for the quarter ended March 2021.
  • It was a very strong quarter overall, with record sales of A$105m, up 52% on pcp and 24% sequentially, in what is historically GDG’s seasonally weakest period.
  • We lift our GDG FY21F/FY22F EPS by 1%-5% on an increase to our sales assumptions in all years. Our PT rises (login to view) on our earnings changes.
  • We believe GDG remains well positioned to execute a compound earnings growth story over time. ADD maintained.

Record quarter for investment bond sales and net inflows

GDG has released its FUM update for the quarter ended March 2021. It was a very strong quarter overall, in our view, with record sales of A$105m, up 52% on pcp and 24% sequentially, in what is historically GDG’s seasonally weakest period.

Quarterly net inflows of A$90m were also a record result (previous record = A$72m), driven by strong sales and very low outflows (only A$15m or 1% of opening FUM versus ~2% historically on average).

FUM rose a healthy 8% for the quarter to A$1.6bn, broadly in-line with the growth rates seen in 2Q21 (~9%). GDG says it currently has ~40% market share of total industry investment bond sales.

Other key points

  1. The Lonsec Investment Solutions (LIS) business continues to see rapid FUM growth, with FUM rising ~A$300m or 24% for the quarter to A$1.57bn. Since GDG invested in Lonsec in October 2020, LIS FUM is up 56%, driven by consistent monthly inflows of >$100m
  2. Management noted that GDG will release some new products in the final quarter of FY21 including a retail offering for the Tax Effective Equity Income Fund
  3. Outlook commentary was relatively upbeat, with management confident the business can perform exceptionally well in 4Q21 if operating conditions remain stable.

Changes to forecasts

We lift GDG FY21F/FY22F EPS by 1%-5% on an increase to our sales assumptions in all years. Our PT rises (login to view) on our earnings changes.

Investment view

GDG’s underlying business trajectory remains encouraging, highlighted by consistent FUM growth, stable revenue margins and an increasing return on equity. We think the recent Lonsec acquisition and development of the new lifetime annuity product have the potential to turbo-charge this growth.

We see GDG as well-positioned to deliver a compound earnings growth story over time and maintain our ADD recommendation.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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