AdvisorOne, the online portal for Investment Advisor magazine, named Jessica Bibliowicz one of the 50 Top Women in Wealth in 2011. Bibliowicz is the CEO of National Financial Partners (NYSE:NFP), a distributor of insurance benefits and wealth management products. CEO since 1999, Bibliowicz also happens to be the daughter of Sandy Weill, former CEO of Citigroup (NYSE:C), so financial services are in her blood. National Financial Partners stumbled badly in 2009. After a corporate reorganization, it's back in good standing, looking to grow profitably. I'll look at why now is a good time to own its stock. (For additional reading, check out 5 Must-Have Metrics For Value Investors.)
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Recurring Revenue
In a February 28 presentation to analysts attending the UBS Small-Mid Cap 1x1 Symposium, Bibliowicz emphasized a number of different elements in its changing business model. Most striking, was its growing emphasis on recurring revenue. Starting all the way back in 2004, it's been looking to build a balanced business model where repeat business is the norm. In 2007, recurring revenue was 45% of its overall business. By the end of 2011, it was up to 62% and climbing.

Most importantly, its Corporate Client Group, which is the most profitable of its three segments, is 100% recurring revenue. Its Advisor Services Group is the next best, with 63% recurring revenue, and dragging up the rear is the Individual Client Group, with 17.9% recurring revenue. It's not surprising then that the Corporate Client Group's adjusted EBITDA in 2011 was almost double that of the Individual Client Group. On the bright side, the Individual Client Group's adjusted EBITDA margin improved by 150 basis points in 2011, despite revenues declining 7.2% year-over-year.

Profitable Growth
I often write about the retail industry. One thing investors always get hung up on is same-store sales growth. Many consider this metric the Holy Grail of retail. However, same-store sales growth means squat if those gains in revenue don't come profitably. In fiscal 2006 and 2007, Buckle (NYSE:BKE), my favorite specialty retailer, had flat same-store sales. Yet its net margins were 10.5%. In fiscal 2011, although its same-store sales again grew by just 1.2%, its net margin was 14.2%. As Harvard economics professor Michael Porter likes to say, "If your goal is anything but profitability - if it's to be big, or to grow fast, or to become a technology leader - you'll hit problems." Buckle opens between 10 and 20 stores each year. That's it. Their competitive advantage is understanding how to make money in different economic climates and knowing when to say no.

I believe Bibliowicz and the rest of her management team understand National Financial Partners' competitive advantage and are growing its business based on this understanding. This past year is a perfect example. Its Corporate Client Group generated 60.6% of its adjusted EBITDA on 40.7% of the revenue. Four years ago, this segment generated 42.3% of its adjusted EBITDA on 30.2% of the revenue. Meanwhile, its Individual Client Group segment has become less important to its profit plans, which is a good thing, because it just doesn't generate enough recurring revenue.

Obtaining new business is always more expensive than serving existing clients. In 2011, it paid $62 million in cash for two acquisitions and four sub-acquisitions (owned by NFP but operated by existing management), all providing recurring revenue. It is allocating $80 million to acquisitions in 2012; seeking opportunities to build its scale in the middle market while continuing its assault on recurring revenue. Of the 3.2% revenue growth in 2011, 2.3% was organic with the other 0.9% from acquisitions. You can expect the same in 2012. The important thing to understand is that as long as it grows adjusted EBITDA margins at a pace greater than revenues, its profit picture will continue to be bright. (To know more about acquisitions, read Analyzing An Acquisition Announcement.)

Cash Flow
In the past three years, its operating cash flow has consistently been between $115 million and $125 million. Choosing to keep its capital allocation flexible, it's reduced its debt repayment amounts in 2012 and instead will focus on acquisitions and share repurchases. Between May 2011 and February 2012, it bought back 4 million of its shares at an average price of $12.45. Its board has authorized another $50 share repurchase program. I'm assuming it will continue to watch its purchases carefully. The price paid per share for the program that just finished was slightly less than the average of its high and low during the nine month buying spree. While not spectacular, it's done better than many. (For related reading, see A Breakdown Of Stock Buybacks.)

The Bottom Line
Bibliowicz emphasizes that National Financial Partners doesn't manufacture any products; they simply distribute them to financial advisors and other financial professionals. This certainly eliminates much of the conflict that exists in financial services. As I look at its price-to-sales ratio, I can't help but notice it's half of peers such as Aon (NYSE:AON) and Marsh & McLennan (NYSE:MMC). Two years removed from a $600 million goodwill impairment charge, its best days are still ahead of it.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  10. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!