SFW Australia is rated positively given its scarcity value as one of two listed vertically integrated wealth managers in Australia. The stock offers upside for strategic acquirers at its current sum-of-parts valuation of 42 cents per share. Potential acquirers include regional banks, third tier lenders, trustee companies, and diversified wealth managers seeking to expand their distribution networks and mitigate key person risks. The deferral of mandatory FOFA reforms to 2013 will drive further sector consolidation as smaller players exit and larger players pursue acquisitions.

1. Stock Focus
Sfg Australia (SFW)
1
IMPLICATIONS OF FOFA REFORMS, SOTP VALUATION, POSSIBLE ACQUIRERS
RECOMMENDATION : POSITIVE
Minister Shorten has today announced deferral of mandatory
commencement of Future of Financial Advice (FOFA) reforms
to 1 July 2013. Despite deferral, FOFA will continue to drive
sector consolidation as smaller players opt to exit the sector
and larger players pursue consolidation.
We remain Positive on SFW, given its scarcity value as one of
only two listed vertically integrated wealth managers (IFL
and SFW). We prefer SFW given its lower valuation of 7.2x
FY13F PE (vs IFL 11.6x), higher dividend of 9.1% (vs IFL
7.7%), management track record and low likelihood of anti-
trust issues given its smaller scale. Our blended valuation of
49cps is based on a simple average of DCF, EV/EBITDA and
sum-of-the-parts (SOTP) methods. Our SOTP values SFW by
applying peer group valuation multiples to each of SFW’s
revenue streams. Reflecting current depressed valuations,
our SOTP valuation is 42 cps, reinforcing our fundamentally
bullish view. Table 1.
WHAT’s NEW?
 FOFA’s mandatory commencement deferred to 1 July 2013. We
analyse investment implications of FOFA for the sector.
WHAT’s CHANGED?
 No change to valuation. Reiterate our Positive view from EAP
Note, “Working Hard for the Money”, 28 Feb 2012.
WHAT NOW?
 SFW will benefit from consolidation, either as target or acquirer.
 As a target - SFW’s 42 cps SOTP valuation confirms value to a
financial buyer. Strategic value to a trade buyer is higher. We
examine the rationale of potential SFW acquirers.
 As an acquirer - SFW benefits from the exit of smaller players
who lack the scale and appetite to manage regulatory reform.
Trading Data
Last Price $0.32
12 month range $0.32 - $0.43
Market Cap $233m
Free Float $119m (51%)
Avg. Daily Volume 0.2m
Avg. Daily Value $0.1m
12 month return (historical) (8.0)%
Expected return improvement driven
by both structural (cost-out) and
cyclical (markets recovery) drivers.
Operating leverage to drive margin
expansion.
Earnings Forecasts
Yr to June 11A 12E 13E 14E
EBITDA ($m) 38.7 38.4 45.0 49.2
Rep NPAT ($m) 23.3 23.7 29.5 32.8
Adj NPAT ($m) 23.3 24.3 29.5 32.8
EPS (¢) 3.8 3.7 4.5 4.9
EPS Gth (%) 20.6 (1.5) 19.2 10.3
PER (x) 8.4 8.5 7.2 6.5
PEG Ratio (x) 0.5 0.3
DPS (¢) 2.5 2.4 2.9 3.2
Yield (%) 7.8 7.5 9.1 10.0
Franking (%) 100% 100% 100% 100%
ROE (%) 15% 15% 17% 18%
EV/EBITDA (x) 5.6 5.1 4.0 3.4
Net Debt/EBITDA (x) (0.5) (1.0) (1.2) (1.3)
Int. Cover (x) n/a (35.8) (21.3) (17.1)
Valuation (blended) $0.49
George Gabriel, CFA
ggabriel@evansandpartners.com.au
March 15, 2012
+61 3 9631 9853

2. 2
IMPLICATIONS OF Future of Financial Advice (FOFA) reforms
1. Public policy rationale
According to Minister Shorten, the public policy rationale of the FOFA reforms is to “restore
trust in the system”, expand the availability of advice and reduce conflicts of interest between
financial advisers and their clients.
"The FOFA reforms are about making sure more Australians can access affordable and better
quality financial advice, free from the conflicts of interest created by commissions and other
product payments. These reforms will drive greater competition and innovation and are a long
term growth strategy for this important industry," said Minister Shorten.
2. Key FOFA reforms include:
(i) A ban on commissions/volume payments to financial advisers from platforms and
funds managers.
(ii) A requirement for advisers to obtain client agreement to ongoing advice fees every
two years and the annual provision of a fees statement.
(iii) The expansion of limited advice (eg. insurance sales).
3. Eight investment themes apply to wealth management stocks through to 2013-14:
(i) Uncertainty as earnings re-base.
(ii) Continued transition to fee-for-service revenue model, creating customer retention
risks and a drive for scale.
(iii) Product manufacturing and platforms will be key to revenue and margin capture.
(iv) Dealer groups to pursue either backward vertical integration (starting/acquiring a
platform or managed funds business) or sale to a larger diversified group.
(v) Sector consolidation to continue (eg. sale of COU to CBA; sale of DKN to IFL;
acquisitions of unlisted wealth management firms).
(vi) New growth option for advisers through the introduction of scaled advice.
(vii) Insurance sales outside of super funds to benefit.
(viii) Major banks will benefit overall given their platform market dominance.
4. Our preferred business models have the following characteristics:
(i) Vertically integrated (across product manufacture, platforms and distribution).
(ii) Less focus on distribution revenue relative to overall revenue.
(iii) An existing fee-for-service revenue model.
(iv) A strong balance sheet to facilitate sector consolidation.
5. Investment implications are:
(i) Buy stocks with valuation support to protect against the risk of earnings re-basing to
the downside.
(ii) Buy vertically integrated stocks given they will face less exposure to margin squeeze
in vulnerable elements of the value chain (eg. distribution) and are more likely to be
acquired.

3. 3
VALUATION
Our sum-of-the-parts (SOTP) valuation confirms our view that SFW offers upside to a strategic
buyer, either to be integrated into a wider business franchise or even possibly as a break-up
play for a financial buyer/private equity. Table 1.
TABLE 1: SUM-OF-THE-PARTS VALUATION
TABLE 2: BLENDED VALUATION
Methodology Key Inputs Value ($ps)
Discounted Cash Flow 13.5% WACC $0.59
Capitalisation of Earnings 7.5x FY12E EV/EBITDA $0.45
SOTP Valuation Table 1 $0.42
Average $0.49
Source: EAP estimates
POSSIBLE ACQUIRERS
The following categories of buyer would likely consider SFW as a target:
 Regional banks (BEN BOQ SUN) who are looking for new growth options given the
challenge of a low credit growth environment.
 Third tier lending institutions (MYS WBB) who lack a broad wealth management
offering.
 Trustee companies (EQT TRU) seeking revenue diversification.
 Diversified wealth managers (PPT BTT) seeking increased distribution networks,
revenue diversification and mitigation of key person risk (ie. star funds management
talent). Historically, financial planners linked to large wealth management groups will
allocate ~70% of their sales to their group’s own products.
 Private equity buyers with financial services experience seeking either a break-up
play or “buy and build” bolt-on acquisition eg. CHAMP, Ironbridge, Propel etc..
 “Back door listing” vehicle for a private wealth management business.
 A listed merger partner, such as PLB and SFW.
We expect that major banks and AMP would struggle to overcome anti-trust issues in
acquiring SFW.

4. 4
FINANCIAL SUMMARY
Sfg Australia SFW
As at: 15/03/2012 Recommendation: Positive Share Price $0.32
Year end June 2011A 2012E 2013E 2014E
INCOME STATEMENT
Sales Revenue $m 127 128 131 138
Consolidated EBITDA $m 39 38 45 49
D&A $m (3) (5) (6) (6)
Consolidated EBIT $m 21 33 40 44
Net Interest $m 0 1 2 3
Tax Expense $m 3 (10) (12) (14)
Associates/Minorities $m 0 0 0 0
Adj NPAT $m 23 24 29 33
NRIs $m 0 (1) 0 0
Reported NPAT $m 23 24 29 33
Shares on Issue (end period) m 727 727 727 727
EFPOWA m 559 727 727 727
EPS ¢ 3.8 3.7 4.5 4.9
DPS ¢ 2.5 2.4 2.9 3.2
Franking % 100% 100% 100% 100%
GROWTH/PROFITABILITY RATIOS
Sales Growth % 48.4% 1.1% 1.8% 5.4%
EBITDA Growth % 42.4% (0.7)% 17.2% 9.2%
EBIT Growth % (16.6)% 60.1% 19.6% 10.3%
EPS Growth % 20.6% (1.5)% 19.2% 10.3%
EBITDA/Sales % 30.5% 30.0% 34.5% 35.8%
EBIT/Sales % 16.3% 25.7% 30.3% 31.7%
EBIT Interest Cover x 20,636.0 (35.8) (21.3) (17.1)
Tax Rate % (12.7%) 30.0% 30.0% 30.0%
ROE % 15.1% 14.8% 17.2% 18.1%
ROFE % 25.8% 28.7% 36.6% 41.8%
CASH FLOW
EBITDA $m 39 38 45 49
Change in Working Capital $m 4 0 0 0
Other $m (18) 0 0 0
Gross Operating Cash Flow $m 24 38 45 49
Net Interest Paid $m 1 1 2 3
Tax Paid $m (8) (4) (11) (12)
Net Operating Cash Flow $m 17 35 36 40
Maintenance Capex $m (3) (2) (2) (2)
Free Cash Flow $m 14 33 34 37
Dividends Paid $m (13) (15) (18) (22)
Expansionary Capex $m 0 0 0 0
Acquisitions $m 9 0 0 (3)
Asset Sales $m 0 0 0 0
Dividends Received $m 0 0 0 0
Shares Issues/Buybacks $m (12) 0 0 0
Other $m 1 0 0 0
Increase in Net Cash/(Debt) $m 0 19 16 13
GOCF/EBITDA % 63% 100% 100% 100%
Total Capex/Sales % 2.1% 1.9% 1.6% 1.6%
Total Capex/Depreciation x 0.9 0.4 0.4 0.4
Year end June 2011A 2012E 2013E 2014E
VALUATION METRICS
PER x 8.4 8.5 7.2 6.5
P/EG (2YR) x 0.5 0.3
Dividend Yield % 7.8% 7.5% 9.1% 10.0%
EV/EBITDA x 5.6 5.1 4.0 3.4
EV/EBIT x 10.4 5.9 4.6 3.8
P/FCF x 16.2 7.1 6.9 6.2
P/BV x 1.5 1.4 1.4 1.3
BALANCE SHEET
Assets
Cash $m 33 52 68 80
Working Capital $m 15 16 16 17
PP&E $m 6 7 8 12
Intangibles $m 144 140 136 132
Investments $m 6 6 6 7
Other $m 7 6 4 3
Total Assets $m 211 226 238 250
Liabilities
Debt $m 15 15 15 15
Working Capital $m 25 34 37 39
Other $m 17 17 17 17
Total Liabilities $m 57 66 69 71
Equity $m 154 160 169 178
Capital Employed $m 136 123 116 113
Net Debt/(Cash) $m (18) (37) (53) (66)
Net Debt/Equity % (12.0%) (23.1%) (31.4%) (36.9%)
Net Debt/Debt+Equity % (13.6)% (30.0)% (45.9)% (58.4)%
Net Debt/EBITDA x (0.5) (1.0) (1.2) (1.3)
Working Capital/Sales % (7.7%) (14.0%) (16.1%) (16.3%)
D&A/PP&E % 48.2% 77.7% 71.0% 48.6%
DCF VALUATION $m $/share
Risk Free Rate 6.5% Equity Value 370 $0.51
Market Risk Premium 6.0% (Net Debt)/Cash 18 $0.03
Beta 1.30 Franking Credits $0.08
WACC 13.5% DCF Valuation $0.59
Group Revenue $m 127 128 131 138
Group EBITDA $m 0 0 0 0
Group EBITDA/Sales % 0.0% 0.0% 0.0% 0.0%
DIVISIONAL SUMMARY
14%
18%
22%
26%
30%
34%
38%
2010 2011 2012 2013 2014
Margin Trends
EBITDA/Sales EBIT/Sales
-2,090
2,040
6,170
10,300
14,430
18,560
22,690
-95%
-80%
-65%
-50%
-35%
-20%
-5%
2010 2011 2012 2013 2014
Gearing & Interest Cover
Net Debt/Net Debt+Equity (%) EBIT Interest Cover (x)
0%
10%
20%
30%
40%
50%
60%
2010 2011 2012 2013 2014
Return Trends
ROE ROA ROFE - Reported

5. 5
RESEARCH RECOMMENDATION DEFINITIONS
Positive Stock is expected to outperform the S&P/ASX 200 over the coming 24 months
Neutral Stock expected to perform in line with the S&P/ASX 200 over the coming 24 months
Negative Stock is expected to underperform the S&P/ASX 200 over the coming 24 months
Speculative Stock has limited history from which to derive a fundamental investment view or its prospects
are highly dependent on event risk, eg. Successful exploration, scientific breakthrough, high
commodity prices, regulatory change, etc.
Suspended Stock is temporarily suspended due to compliance with applicable regulatory and/or Evans &
Partners policies in circumstances where Evans & Partners is acting in an advisory capacity.
Not Rated Stock is not included in our investment research universe.
Research Criteria Definitions
Recommendations are primarily determined with reference to how a stock ranks relative to the S&P/ASX 200 on
the following criteria:
Valuation Rolling 12 month prospective multiples (composite of Price-to-Earnings Ratio, Dividend
Yield and EV/EBITDA), or long-term NPV for resource stocks.
Earnings Outlook Forecast 2 year EPS growth.
Earnings Momentum Percentage change in the current consensus EPS estimate for the stock (rolling 1 year
forward basis) over the consensus EPS estimate for the stock 3 months ago.
Shareholder Returns Composite of forecast ROE (rolling 1 year forward basis) and the percentage change in
ROE over 2 years.
Debt Servicing Capacity Rolling 12 month EBIT Interest Cover ratio.
Cyclical Risk Qualitative assessment of the 2 year outlook for a stock/industry’s profit cycle.
Industry Quality Qualitative assessment of an industry’s growth/returns potential and company specific
management capability.
Financial Transparency If we don’t understand it, we won’t recommend it.
For stocks where Evans & Partners does not generate its own forecasts, Bloomberg consensus data is used.
Analysts can introduce other factors when determining their recommendation, with any material factors stated in
the written research where appropriate.

6. 6
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