Two Small-Cap Asset Managers With Substantial Long-Term Potential

Michael Markowski |

Shares of asset managers are attractive based on my predictions for the stock market between now and 2018. Two small-cap asset managers provide substantial long term capital gains opportunities.

I am recommending that shares of two small-cap asset managers, Investview ($INVU) and Hennesy Advisors (HNNA) be accumulated by investors who are seeking substantial long-term capital gains. I am also recommending the shares of all of the companies in the asset management industry in the table below. My prediction is their share prices and dividends will steadily increase and outperform the S&P 500 between now and 2018. My recommendations are based on the long-term predictions I made for the stock market and commodity prices that I made in my May 2013 report “Put a Fork in the Bear”. In a December 2013 follow-up report, “SEC’s Lifting of 1933 Non-Solicitation Ban Will Lift Markets 100% Higher” I stated “The next three-to-five years and possibly the next 10 years will go down in history as the world’s biggest bull market.” In my December update, I had also predicted that the major indices including the Dow, S&P 500 and NASDAQ would double by 2018.

The video, “Crowdfunding’s Impact on the Market” contains the research, which supports my extremely bullish five year predictions.

 

The primary focus of this report is on Investview as it is transitioning its business model from the investor education industry to the asset management industry. Hennesy Advisors is my secondary focus because while conducting my research on Investview I discovered that it is the fastest-growing publicly traded asset management company.

Since May of 2014, Investview has been gaining significant momentum in transitioning from its high risk and high customer acquisition cost online investor education and trading research model to an extremely reliable, tried and proven financial services industry model. The ultra-conservative direction that Investview is now heading provides significant upside appreciation potential with extremely low risk for its shareholders.

The tipping for Investview to transition its primary business to an asset management business model came in May of 2014 when Jordan Kimmel joined the company as its Chief Investment Officer. Mr. Kimmel has more than 25 years of experience as an investment professional in the financial services industry. Kimmel also has significant credibility and visibility among other professionals in the New York area investment community. He developed and licensed his proprietary MAGNET® Stock Selection Process software to mutual fund company John Nuveen. Jordan Kimmel has had more than 500 TV appearances on the CNBC and Fox Business news channels. His hiring provided the foundation that Investview needed to completely transform the company into an investment and asset management business and revenue model.

A video of a discussion between Jordan Kimmel and Dr. Louro is available.

The successful recruiting of Jordan Kimmel was a brilliant move by Investview. Mr. Kimmel, who has deep credibility, was the catalyst that Investview needed to attract additional credible financial or institutional investment professionals and their respective clients and related assets to Investview.

In August of 2014, three months after Mr. Kimmel joined Investview, my eyebrows were raised when the company announced that it was a acquiring a majority stake in Vickrey Brown Investments, LLC. Don Vickrey, a co-founder of Vickrey Brown, is a legend on Wall Street with hedge funds and institutional investors. Mr. Vickrey, has a PhD and was formerly a tenured professor of finance at San Diego University. He also holds the CPA and Certified Fraud Examiner (CFE) licenses. In March of 2008, which was six months before AIG was bailed out by the US Government, Mr. Vickrey warned investors in a Huffington Post article about the tremendous risk that AIG’s management had been taking. Mr. Vickrey was the developer of MSN’s stock Scouter ratings system.

Later in August 2014, Investview announced that it had entered into a joint venture with J. Streicher Wealth Management, a Registered Investment Advisor (RIA). In doing my due diligence on Streicher, I learned that the New York City based firm was founded as a NYSE specialist in 1910. The firm’s roots are deeply imbedded in all facets of Wall Street and its professionals are regular commentators on CNBC and Fox Business, etc. Based on my discovery of Streicher’s rich tradition and heritage, I was stunned when I read in Investview’s press release that Streicher had lent its name and “agreed to provide its support in the development of a joint venture with Investview in a new proposed RIA firm called Investview Streicher Advisors”.  I could not find another instance in which the 104 year old Streicher had agreed to share its name with any other entity. That Investview was able to have its name be associated with the Streicher brand was a significant coup.

Investview’s October 2014 announcement was significant wherein they stated they were acquiring Certus Securities and Certus Investment Advisors, including the $300 million of assets that it had under management from Certus bank on October 7, 2014. It was the crucial puzzle piece that I had been looking for. It signaled to me that Investview had truly been transformed and is now in the position to become extremely successful.  Certus has the existing infrastructure in place to support Investview’s growth in its network of registered investment advisors and professional asset managers throughout the southeastern region of the US.

There are three reasons why I am now extremely bullish on Investview even though its recent share price is trading at just below $2.00, which is slightly above its all time lows: 

  • Growing and recurring revenues. Based on the company’s four announcements that it has made since May of 2014, Investview has transformed itself from the online investor education and information industry participant to an asset management company. Investview’s business of catering to do-it-yourself or online novice investors had been very risky. Their customer acquisition costs were very high and the revenues were not recurring. On the other hand, the fees generated from its assets under management revenue model are very stable and are recurring.
  • Being publicly traded and having a low market capitalization valuation is conducive for their roll up growth strategy.  The second reason for my being optimistic is that Investview is a public company which has a very low valuation or market cap. This is very important. Investview can use its low priced and undervalued shares as the carrot to recruit “experienced” Registered Investment Advisors to join the company. An investment management firm that is publicly traded has an inherent advantage over a privately held firm. The public firm can provide the advisors it recruits with the opportunity to increase their liquid net worth and generate capital gains from the publicly traded shares that they receive when they join the firm. 
  • Tax loss carry forward of $95 million. Investview has a tax loss carry forward on its Balance Sheet of $95 million  That Investview has generated the deficits while being in the financial services industry, is a huge blessing. It means that all of the losses can be offset against the net income the company could earn from the fees it receives from its assets under management. Assuming that Investview generates a 1% fee on the assets that it has under management it would not pay any taxes on the first $9.5 billion of the assets that it manages.   

The business model of a publicly traded asset management company is very simple and HIGHLY predictable. The publicly traded asset manager can use its shares to recruit advisors to join it. When the advisors join the company its assets under management increase along with its recurring fees or revenues. The result is that revenue and profit growth increases the value of the company along with the price of its shares.  The key is to limit the number of advisors that it recruits for each of the predetermined share price levels. As each wave of advisors joins the company, its assets under management and the associated fees will increase. Finally, the steadily increasing share price will enable the company to a lower number of shares it has to issue to each new wave of advisors which join the company.

Based on the investment management related announcements, the simplicity and predictability of Investview’s asset management revenue model, I suggest that the company has already begun to grow exponentially and sequentially. Given their simplistic revenue model, the only reason why I could see that they would not be generating sequential quarterly growth of revenue; eventually leading to profits and dividends; is the price of their shares not advancing to the higher levels that would enable them to recruit additional advisors. However, I doubt that this will be a problem since the very professionals that Investview is recruiting are not novice investors. By their joining the company, they will be fully aware that a highly predictable asset management model will result in a steady increase in the price of Investview’s shares. Should the shares become undervalued in the open market they would want to purchase them for themselves and for their key clients. 

To calculate the future potential value of an Investview share, I researched the most recent price to sales multiples for the companies which are members of the Investment Management Industry. The table below depicts the price to sales multiples, annualized revenue growth rates and the market caps or total valuations for the publicly traded investment or asset management companies. At the low end of the range is Janus Capital Group with a price to sales multiple of 3.1. Cohen & Steers is at the very high end of the range with a price to sales multiple of 6.4.

 

Price to Sales Multiples and latest annualized revenue growth rates for members of Asset Management Industry as of November 7, 2014.

Company

Symbol

Price

Market cap or valuation

Price/Sales Multiple

Revenue growth rate %

Cohen & Steers Inc.

CNS

$42.92

$2.0 b

6.4

8.83%

T. Rowe Price Group, Inc.

TROW

$83.23

$21.5 b

5.7

15.28%

Franklin Resources Inc.

BEN

$56.98

$35.5 b

4.3

12.75%

Eaton Vance Corp

EV

$43.90

$5.0 b

3.7

12.28%

Federated Investors, Inc

FII

$31.34

$3.0 b

3.7

-7.12%

Invesco Ltd.

IVZ

$41.28

$17.8 b

3.6

14.67%

Janus Capital Group, Inc.

JNS

$15.31

$2.8 b

3.1

2.81%

Hennessy Advisors

HNNA

$18.35

$110 m

3.4

243.72%

Investview

INVU

$1.60

$20m

N/A

N/A

 

 

I am currently projecting that Investview will have a minimum of $2 billion under management by the end of calendar 2015, $5 billion in 2016 and $10 billion by the end of 2017. Assuming a 1% recurring asset management fee, Investview’s revenue from its asset management business over its next three calendar years would range from $20 million in 2015 to $100 million in 2017. At a price to sales multiple of 3.1, which would be at the low end of the range, Investview’s share price assuming the completion of its announced equity financing would be valued at $3.70 in 2015 and at $19.00 in 2017. At the high end of the price to sales range, Investview’s shares could potentially be valued at $7.85 in 2015 and at $39.25 in 2017.

My projections could prove to be extremely conservative. The $10 billion of assets under management could be reached much sooner. Investview’s business model is highly scalable. There is a pool of more than 33,000 registered investment advisors from which the company can recruit. Having $10 billion of assets under management has the potential to be a no brainer. Should Investview successfully recruit 100 advisors with have an average of $100 million of under management its assets under management would equate to $10 billion its share price could get to their 2017 high and low price to sales multiple targets as soon as 2015 or 2016.

The role model that Investview may be following, or should be following, is peer asset manager, Hennesy Advisors (HNNA) . After Hennesy acquired FBR Funds in late 2012 its share price took off like a rocket. Hennesy’s share price had fallen to an all-time low in January of 2009 and had flat lined and remained for fours at a price below $5 until it made its key acquisition. .

The acquisition that Hennesy made increased its assets under management to $3.1 billion. At the beginning of 2013, Hennesy’s shares were quoted on the Over the Counter Bulletin Board at $4.45. Its share price has since advanced to record quarterly high prices for every quarter beginning with the first calendar quarter of 2013. In April of 2014 its shares were listed on NASDAQ and most recently traded at a high of $22.01. The company recently increased its quarterly cash dividend by 25%.

Hennesy has the second smallest market cap as compared to all of its peers and was most recently growing at an annualized growth rate in excess of 243%. I believe that its shares; even though they have multiplied by four times in less than two years, are still a great buy.

Since Hennesy Advisors and Investview are both small-cap companies, their shares do not trade a lot of volume. I am currently recommending that the shares of both companies be acquired at prices which are at or below their 52 week highs. Investview’s 52 week high is $2.45 and Hennesy’s is $24.95. The shares of both companies have significant long term upside potential. As I continue to monitor them and their fundamentals continue to improve, the price limit targets will be increased. Their low market caps and share prices make them very attractive for recruiting registered investment advisors and acquiring small and medium sized asset management companies. They both are trading at market caps or valuations of less than $110 million. This compares to their peers which have market caps or valuations which range between $2.0 billion (Cohen & Steers (CNS) ) and $35.5 billion (Franklin Resources (BEN) ). 

I believe that asset management industry over the next five years has the lowest risk than most of the more than 200 industries that I follow. I predict that the share prices of all of the public company members of the industry will steadily increase for every year between now and 2018.

I have been writing regularly about Investview since my initial recommendation on it was published on the OnlineFinancialSector.com website in 2008. Since then, it has been my biggest loser. My motivation for originally recommending Investview shares was its status as the only publicly traded investor education company pure play. I had previously recommended investor education industry leader Investools in 2003. Those who acted on my Investools recommendation were rewarded with a return of 816% when it was acquired by Ameritrade in 2009.

Unfortunately, Investools killed Investview and the entire investor education industry shortly after I had recommended Investview’s shares. After acquiring specialty online broker Thinkorswim (AMTD) , Investools announced that they would no longer pursue the selling of its investor training courses that its instructors had been teaching in hotel rooms across the US. Investools, instead of continuing to market and sell their courses for upfront amounts ranging from $1,000 to $10,000, made the decision to utilize their courseware as a loss leader by making it freely available to clients of newly acquired Thinkorswim online brokerage firm. Investools decision wiped out the brick-and-mortar and online investor education tuition models. Up to that point the industry had been extremely profitable and cash flow positive. Investools and all of its peers including Investview had been selling their weekend courses for an average of several thousand dollars per student with 100% of the tuition being prepaid. Today all of the brand name online brokers offer courseware to their clients for free.     

Since 2008, and up until only recently, Investview had struggled to find its identity. In 2011, Dr. Joseph Louro joined the company. As its new CEO, he vowed to transform Investview into a growing and profitable member of the financial services industry. The company did everything that it could to create recurring revenue by marketing and selling its extremely valuable investor education curriculum via a monthly subscription to no avail. It also developed its 7 Minute Trader product that has a track record of generating returns of 320% since 2011 to market and sell to the 60,000 individuals in its data base which had taken an investment and trader education course. The company could not figure out how to get newly educated investors to continue to be monthly subscribers after they had become educated.

Even though the company could not get out of the reverse gear, its CEO never wavered. In each and every investor conference call, Dr. Louro repeated his vow that he would one day get Investview to grow and become a profitable member of the financial services industry.  

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
EV Eaton Vance Corporation 40.03 -0.43 -1.06 683,931
FII Federated Investors Inc. 27.68 -0.19 -0.68 967,952
HNNA Hennessy Advisors Inc. 33.10 -0.55 -1.63 4,716
BEN Franklin Resources Inc. 39.21 -0.35 -0.88 1,586,795
AMTD TD Ameritrade Holding Corporation 41.48 -0.40 -0.96 2,199,099
TROW T. Rowe Price Group Inc. 75.48 -0.09 -0.12 1,650,947
JNS Janus Capital Group Inc 13.54 -0.25 -1.81 974,538
IVZ Invesco Ltd 31.42 -0.20 -0.63 2,349,382

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