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Evans Dixon IPO: It's about more than just money

Evans Dixon IPO: It's about more than just money
Focused on providing wealth management, capital markets and advisory services, Evans Dixon has $18 billion in ‘funds under advice’ of which $5 billion belong to its funds management business.
May 08, 2018 Tags: IPO, News, ED1

Evans Dixon (ASX:ED1) is trading firmly above the IPO price after hitting the ASX boards on Monday.

The purpose of the exclusive $535 million initial public offering targeted at partners, employees and clients was to cement strategic partnerships. The Melbourne based financial services group has offices in most major Australian cities as well as New York City and is the result of a merger between Dixon Advisory and Evans & Partners in 2017.

Focused on providing wealth management, capital markets and advisory services, Evans Dixon has $18 billion in ‘funds under advice’ of which $5 billion belong to its funds management business.

The company raised just shy of $170 million in order to repay borrowings, pay out vendors and pursue potential growth opportunities and strategic transactions. With an implied market capitalisation of $535.2 million (the current market cap is around $550 million as at 16 May), the IPO was valued at approximately 12 times forecasted earnings before interest, tax, depreciation and amortization (EBITDA). The company forecasts a dividend yield of around 4%.

 The financial performance looks good on paper, but the IPO comes at a time when financial services firms and wealth management businesses are being scrutinised after the royal commission revealed industry wide misconduct and unethical practices in corporate Australia. Arguably, the royal commission did not reveal anything new: it is common knowledge that the banking industry promotes a sales-driven culture, which emphasises profit at all costs.

However, the single most important commodity traded in the financial system is confidence. A sustainable and trustworthy financial system is a necessity for long-term wealth creation and companies like Evans Dixon must demonstrate strong compliance, corporate governance and a ‘healthy’ culture – not just robust financial performance.

In addition, the disruptive power of new digital technology has changed the industry for good and is a significant risk as well as an opportunity for financial advisors and wealth management businesses. Failure to adjust to the ever-changing nature of this industry could threaten the very existence of ‘traditional’ financial services firms.

Evans Dixon lists at a time where stock markets may be at a cyclical peak and the industry faces multiple challenges tied to regulation, technology and changing investor behaviour, thus creating a challenging foundation. However, I see an opportunity for companies to stand out by successfully incorporating sustainability, ethics and wealth creation, which, in fact, should be the only reason why an advisory firm exists.

Evans Dixon Limited
ASX Code: ED1
Shares on Offer: 62.9m – 72.9m
Listing Price: $2.50
Market Capitalisation: $535.2m
Listing Date: 14th May

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