Despite a challenging start to earnings season for some businesses, two small caps in the TAMIM portfolio have delivered strong performances.

Standout performances from Centrepoint Alliance Limited (ASX: CAF) as well as the continued growth and performance from the boring but beautiful Servcorp Limited (ASX: SRV). 

We take a closer look at both below.

Centrepoint Alliance 

Centrepoint Alliance reported an impressive set of financial results for FY2024. The company exceeded its own guidance with an underlying operating earnings of $9.1 million, a 20% increase from the prior year. This was driven by the successful integration of Financial Advice Matters Group (FAM), acquired in December 2023, and strong organic growth in licensee fees. The company’s net revenue rose by 11% to $36.1 million. A number of cost control measures implemented during the period improved the cost-to-income ratio from 77% to 75%. These gains, coupled with Centrepoint’s strategic initiatives and market-leading adviser recruitment, have positioned the company well for continued growth.

Centrepoint’s balance sheet remains solid. As of June 30, 2024, the company holds a net cash position of $9 million, with $3.2 million in bank debt linked to the FAM acquisition. The strength of the company’s financial position allowed for a final dividend of 1.75 cents per share, bringing the total fully franked dividend for FY2024 to 2.75 cents per share. Increased revenue and improved cost control positively impacted the bottom line. Earnings per share saw an increase of 21% to 3.92 cents. 

Operationally, Centrepoint’s ability to attract and retain financial advisers has been a standout feature. The number of authorised representatives increased by 38 to 549 by year-end, an excellent result given the broader market continues to consolidate. Growth within the company was further enhanced by the integration of FAM which has exceeded internal expectations. The high-margin salaried adviser market was also a significant contributor. Additionally, the launch of the IQ Managed Portfolios and the upcoming IconiQ platform are set to continue to improve Centrepoint’s service offerings, further enhancing its market position.

Looking ahead, Centrepoint is well-positioned to continue its growth trajectory, with FY2025 operating earnings guidance in the range of $10 million to $10.5 million. We estimate this earnings guidance is conservative and with free cashflow of $5 million or more, the dividend should be around 3 cents a share. CAF has been subject to corporate activity in the past and we believe it’s only a matter of time before its largest holder, COG.ASX makes a takeover bid. The company’s positive outlook is underpinned by a strategic focus on expanding its adviser network, enhancing product offerings, and maintaining operational efficiency. 

Servcorp 

Servcorp continues to deliver with an exceptional full year 2024 result. The company achieved a net profit before non-cash impairments and tax (NPBIT) of $56.6 million, surpassing its market guidance of $50 to $55 million. Much like Centerpoint, the company’s strategic focus on operational efficiency and premium service led to an increase of 18% in NPBIT. This flowed through to the bank with an 18% rise in underlying free cash to $72.5 million. Revenue and other income grew by 7% to $317 million.

Servcorp’s balance sheet remains particularly strong, with cash and investment balances exceeding $120 million as of June 30, 2024. 

This strong cash position enabled the company to declare a final dividend of 13 cents per share. The total dividend for the year stands at 25 cents per share, representing a 14% increase from the previous year. The company expects to maintain a similar dividend in 2025, with next year’s dividend forecast to be a minimum 26 cents per share. Even after the recent share price increase, Servcorp offers a 5% dividend yield, making it an attractive income play with growth potential. We see the company’s ability to return capital to shareholders as a real positive. 

Servcorp sets itself apart from the competition with its value proposition. The company provides customers with substantially better service than the industry average. With such a focus on staff, Servcorp ensures unparalleled service quality and client support. Its advanced IT infrastructure further provides clients with superior connectivity and service reliability solidifying its premium service.

The completion of the Middle East reorganisation and the establishment of Servcorp Middle East Group marks a key milestone, paving the way for a potential 2025 listing. We believe an IPO on the Saudi stock exchange should unlock $250 million of value to SRV shareholders.

This, along with Servcorp’s focus on expanding its global footprint and enhancing its service offerings, has put the company in a strong position for sustained growth in the coming years. The company has given initial guidance of $60-$65 million of PBT in 2025 which was significantly higher than market expectations. As Servcorp continues to leverage its critical mass and operational efficiencies, it is poised to maintain its leadership in the global workspace solutions market while delivering consistent value to its shareholders both from capital growth and income.

The TAMIM Takeaway

Centrepoint Alliance and Servcorp are prime examples of the type of investments TAMIM seeks—companies with strong growth potential that are also capable of delivering consistent income to shareholders. Despite being perceived as “boring” by the broader market, these companies offer significant valuation upside for patient investors. Both SRV and CAF exhibit qualities that align with TAMIM’s investment philosophy: strong financial management, strategic growth initiatives, and a commitment to shareholder returns. As such, they remain valuable components of our portfolio, poised for continued success in the coming years.

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Disclaimer: Centrepoint Alliance Limited (ASX: CAF) and Servcorp Limited (ASX: SRV) are held in TAMIM Portfolios as at date of article publication. Holdings can change substantially at any given time.