Euroz Hartleys Group: an Australian financial services microcap with great earnings quality
Euroz Hartleys Group has four business lines: Stockbroking & Corporate Finance (underwriting and private placements), Funds Management, Wealth Management and Investing. The stock trades at the Australian stock exchange with symbol EZL.
When I did this research the stock price was about 0.85 AUD. Yesterday it closed at 0.81 AUD. This company is small with a market cap just below 90 million USD.
I looked into the following documents:
1. Financial statements 6 months ending on 31 December 2023
2. Annual report over 12 months ending on 30 June 2023
3. Preliminary final report over the 12 months ending on 30 June 2024 (audited).
The auditor does not mention any key audit matters in the annual report. I think that is because reporting requirements are less strict in Australia than in most other countries. A search on the company name and keyword “fraud” did not reveal any issues.
According to the annual report and the interim report the company gets most of its profits from private placements and underwriting. Also the wealth management probably operates at its break-even point. The funds management segment operates at a small loss. That may change if assets under management continue to increase.
The balance sheet is strong with normal leverage, a high current ratio, lots of cash and no debts. There are substantial lease liabilities but much lower than the unrestricted cash balance.
Substantial shareholders: According to the annual report there are four people with more than 1 million USD in shares among board members and members of management, and another one has close to a million USD in shares.
However, two of these people have retired from working for the company in 2023. In the preliminary financial report it says the executive chairman, Andrew McKenzie, owns 12.8 million shares and bought in total 1.049 million shares since 1 July 2023.
I do not know exactly when he bought these extra shares. In any case he bought 250k shares on the stock market for 0.87 AUD per share at the end of November 2023. On the same day another executive director, Mr Richard Simpson, also bought 100k extra shares for 0.87 AUD per share.
Now retired executive director Jay Evan Dale Hughes owns 7.03% and a company called Ice Cold Investments Pty Ltd owns 7.39%.
Related party transactions: I do not think there are significant related party transactions apart from management compensation. A concern is large bonuses for management/executive directors encouraging excessive risk taking. I do not think the executive chairman is the best paid member of management.
Apart from the executive chairman there is also a separate chief operating officer, Mr Anthony Brittain. An issue is that this COO is also the CFO.
This is certainly a very shareholder friendly company, with small and very large dividends over the years and also significant buybacks.
My take: cheap Australian financial advisor/wealth manager microcap based on EV/EBIT with good multi-year quality metrics. I think the company is growing.
Well managed and shareholder friendly. Transparent. I have not found any governance issues apart from that the COO is also the CFO.
I like that the share price is not very volatile. I think this is a good stock for a small position.
Disclosure: long shares of Euroz Hartleys Group.