Lighthouse brings Independent financial advice to AIM

Shares in Lighthouse Group (?Lighthouse?) rallied last week, spurred on by robust full year results for the period ending 31 December 2006. Lighthouse is predominantly in the business of selling financial products through approximately 500 Independent Financial Advisors (IFA?s) - and business is good.

IFA?s are a pivotal part of the UK savings, pension and investment industries, and millions of people seek advice every year. The number of people seeking advice is expected to continue to rise strongly too, as regulations by the government continue to favour guidelines whereby individuals become more responsible for their own future. This is abundantly clear in the creation of various savings products by the Chancellor of the Exchequer over the years; from Individual Savings Accounts (ISA?s) to Self Invested Pension Plans (SIPP's) and even more recently, the allowance for retail investors to invest in ? funds of hedge funds?- something that many people fear is a step too far.

Regardless, all of these new investment products aimed at encouraging UK society to invest and save more for the future means business is booming in the IFA sector. Interestingly, most individuals probably don?t realise that IFA?s receive a commission on advice they give to their clients. The current model usually involves a one-off incentive. However, the FSA recently launched a ?Retail Distribution Review? looking into how the current model could be enhanced. It is widely believed that the government will move towards a more ?life of product? incentive scheme, where incentives will be linked to advice and service provided over time rather than a one off fee. This is clearly in line with government policy over the last decade, and once again will move emphasis of planning for the future over to the private sector. This has helped Lighthouse increase its turnover to record levels in 2006 and should help it continue to do so in the future.

Group revenues for the year ended 31 December 2006 increased by 45% to £47.2 million (2005:£32.6m). Half of this increase is attributable to the acquisition of Carrwood during the last financial year. Gross Profit increased by 82% (22% if you remove Carrwood) to £15.7 million (2005:£8.6 million) and Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) rose to £2.3 million (2005:£450,000). Again, the bulk of the increase was driven by cost savings squeezed out of the integration of Carrwood; nonetheless, the strong earnings performance allowed the group to increase cash balances by 33% to £6.8 million. With no debt or recurring charges on the balance sheet, Lighthouse looks to be in very good shape. Group recurring revenues also rose sharply to £6.6 million in 2006 compared to £3.8 million in 2005. The only blot on Lighthouse?s results was a one off exceptional charge of £1.5 million relating to FRS 20 accounting rules surrounding the company's employee benefit trust ? classified by the company as ?optically irritating? to an otherwise flawless year.

Lighthouse has five main operating divisions:

Lighthouse Carrwood- salaried adviser division - was created post Carrwood acquisition. The division comprises of 40 advisers and managers who have 80 formal introductory agreements in place through accountancy firms. Lighthouse Carrwood provides administrative and ?paraplanning? to its advisers to enable them to focus on advice. (Paraplanners do back-office administration - preparing plans and reports etc - for financial planners.)

Lighthouse Temple is a national IFA operation. The company owns the trading brand, clients and all income derived from the division. The group has 148 advisers and a further 9 about to join.

Lighthouse Wealth focuses on high net worth clients, offering research, advice and sophisticated investments through 40 advisers.

Lighthouse Xpress focuses on a ?network? of 280 independent advisers and provides indemnity insurance, regulatory cover and collects income for these advisors.

Lighthouse Group Benefits administers 400 active pension schemes, 115 group risk schemes and 100 group health schemes.

The spread of IFA?s divisions gives Lighthouse good exposure to the entire breadth of the industry, and also shields it from being too reliant on one particular niche sector of the IFA market ? a fact not lost on Liverpool Victoria Friendly Society Limited (LV), the UK's largest friendly society, which has just entered into a strategic arrangement with Lighthouse. Under the agreement Lighthouse have exclusive access to provide IFA advice to groups that LV has associations with, including 10 of the UK?s largest unions which have 5 million members. The arrangement will add £1 million in recurring revenues per annum to Lighthouse. Lighthouse has issued approximately 4.17 million shares to LV which represents 4.99% of the issued capital, and LV has also subscribed to an additional 5% stake in Lighthouse at 25 pence per share which will raise £1 million, boosting Lighthouse?s cash balances to nearly £8 million.

Lighthouse is well funded and operating in a growing market ? is it possible that the UK's largest friendly society might want to be more than chums? It?s corny I know ?but keep an eye out for lighthouse.