sanders morris harris group smhg

Sanders Morris Harris Group (SMHG)

Sanders Morris Harris Group (SMHG) is a niche holding company based in

Texas, that provides a variety of financial services- asset and wealth

management, financial planning, investment banking/private equity and

fixed income services. Their "assets under management" has grown to

over $13 billion from $3.2 billion back in the year 2000. I own some

shares of SMHG for long term investment. Here are some of the reasons

I like it:

1) SMHG has been following a "roll-up" strategy where they acquire

highly successful independent financial advisor practices. Many of

these advisors would prefer to "hand over" most of the administrative

responsibilities to a larger firm and diversify their investment. This

is similar to what Warren Buffett's Berkshire Hathaway has done.

In late 2005, SMHG acquired 51% of Edelman Financial Center and they

plan to buy the remainder in 2008 and 2009. Edelman was one of the

fastest-growing privately-held financial planning firms in the

country. Ric Edelman, the founder, is a leading advocate of financial

literacy, and hosts a popular weekly radio program that started in the

Washington DC area. Edelman's market reach is now much bigger since

the program has been nationally syndicated. I heard his program this

morning (I live on Long Island) and thought it was quite good-higher

quality information provided than someone like Suzy Orman or even Bob

Brinker. Ric Edelman is included in Barron's 2007 List of Top 100

Financial Advisors which was just published today. As of December 31,

2006, Edelman had more than 7,600 clients and $3.2 billion in assets

under management.

Almost all of the advisors on Barron's Top 100 list focus on the high

net worth market (over $1 million), but Edelman has built his business

on the growing "mass affluent" market with an average net worth of

about $400K. The mass affluent market is expected to grow rapidly over

the next 15 years and is not as competitive as the high or ultra-high

net worth markets.

2) SMHG also owns Cummer/Moyers, a No. 1 ranked firm in 2005 and 2006

by Nelson's World's Best Money Managers.

3) Many cross-selling opportunities. For example, their high net

worth, mass affluent, and institutional clients have access to

securities offerings developed by their investment bankers. They can

also provide asset and wealth management products to executives of

their investment banking clients.

4) I think SMHG may be an acquisition target of a larger firm like

Schwab or Fidelity who are trying to build up their wealth management

business. I did not see ANY Schwab or Fidelity advisors on Barron's

Top 100 list.

5) Great Balance sheet- $153 million in cash/securities. Yahoo lists

their market cap at $309MM, but Enterprise Value is only $158 MM.

6) Average analyst estimates were raised to 0.79 about 30 days ago, so

next years PE ratio is quite modest. Price/Book of 1.36 also seems too

low for a company of this quality.

# posted by quant_investor @ 10:24 AM