Sequoia flags profit shortfall

Sequoia Financial Group’s 1H23 EBITDA has been negatively impacted by “several abnormal items”, which the firm says are having an effect on its short-term performance.

In a business update released to the ASX on Monday, Sequoia reported that its 1H23 EBITDA is now expected to be around $3.2 million, a shortfall of 40 per cent to its EBITDA budget.

“The group continues to perform in line with long-term expectations, however, [it] notes that it has fallen below budget expectations for this half year,” the firm said.

Within its licensee services division, Sequoia pointed to a previously disclosed delay in the recovery of claims cost repatriation of more than $2 million as well as increased adviser servicing costs.

“Whilst we have made progress in seeking a recovery of these payments from our professional indemnity insurers, we have not recognised a contingent asset at this stage,” the firm stated.

“On the positive side, the number of advisers we provide licensee services to under four separate AFS licences has increased in recent months because of successful organic recruitment, particularly under the Interprac Financial Planning AFS licence.”

According to Sequoia, the division is expected to record a very strong second half. The firm noted that it is actively looking to recruit additional brokers in Sydney and Melbourne.

Sequoia is also considering a consolidation in the number of AFS licences it operates from four to three by year’s end, which is expected to have a positive influence on divisional margin.

Meanwhile, the firm’s direct investment division has fallen short of the EBITDA budget in the first half by approximately $500,000. Sequoia indicated that it has taken longer than anticipated to integrate various companies within this division.

“Whilst the integration is causing short-term pain to our bottom line, we have significantly improved this division’s market offer and remain confident the second-half results will better reflect the opportunities we believe we can capitalise on,” it said.

Turning to the equity markets division, an unanticipated reduction in marketing of new specialist investment products in the current period, as discussed at Sequoia’s November annual general meeting, has seen EBITDA fall by more than $500,000 versus a year earlier.

Finally, Sequoia’s professional services division was reported to be performing well, with potential for further consolidation and acquisition and margins remaining solid.

“Whilst our short-term result is well below our expectations, the board remains confident that we are executing on our long-term strategic initiatives, and that the business fundamentals are in very good shape,” Sequoia said.

As part of its ASX announcement, Sequoia confirmed a 40 per cent increase to its half-year dividend, from 0.5¢ per share in 1H22 to 0.7¢ per share in 1H23.

“We expect the investment and integration program we have undertaken in this half will allow the company to make up a significant amount of the 1H23 profit shortfall in the full-year 2023 result,” the firm added.

Sequoia noted that it will provide a more detailed update in its upcoming half-year results, due to be released on 16 February.