Valens Credit Weekly Insights - 2024 02 27
LPL Financial (LPLA) has created a powerful platform to empower independent and smaller scale wealth advisors to compete with the big players like Merrill Lynch and Morgan Stanley. Uniform Accounting highlights the company's operational improvements that the market is missing, indicating equity upside.• LPL has reformulated the value proposition of being an independent RIA with its asset-light advisor platform. Uniform ROA has expanded to new peaks above 20%, which is sustainable going forward. As it continues scaling, that growth flows directly to margin expansion, meaning Uniform ROA can continue expanding.LPL's management is aligned to focus on EBITDA growth and customer retention, which will lead management to grow the top-line and improve margins. Given the firm's already asset-light model, these are the right metrics to drive ROA expansion. • Management confidence in the Q4 earnings call about its growth opportunities and ability to attract new advisors support further ROA expansion and continued growth.
Hillenbrand (HI) and Cognizant (CTSH) are being removed from the Conviction Long List. Hillenbrand's business hasn't seen the improvements it's hoped from its recent injection molding acquisitions and its current earnings are projected to fall short of the debt
obligations it took on to fund these purchases. And asset-based consultant Cognizant's revenue declined in 2023, suggesting that it is losing growth momentum and its ability to improve profitability.
LPL Financial Holdings is a holding company. Through its subsidiaries, the company is engaged in the retail financial advice market and independent broker-dealer. The company's product and solution access includes: Commission-Based Products, which include variable and fixed annuities, mutual funds, equities, and insurance, among others; Fee-Based Advisory Platforms and Support, which include wrap-fee programs, mutual fund asset allocation programs, financial planning services, and retirement plan consulting services; and Cash Sweep Programs, which manage their clients' cash balances through a money market sweep vehicle involving money market fund providers and insured sweep vehicles involving banks.
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- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
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