The financial services industry is neck high in paper work and it’s not getting any better. A Pennsylvania company helps make this nightmare disappear through outsourcing. SEI Investments (SEIC) provides pre-packaged as well as custom solutions to financial service professionals helping them focus on the important part of their business, serving clients. Outsourcing works and the company’s results speak volumes about the need for their products and services.

SEI, in business since 1968, has four basic divisions handling many different products and services. The areas they concern themselves with are private banking and trusts, individual investment advisors, money managers, and employee-sponsored pension plans. To delve into the little details of how and why each division operates would take more than one post, likely three or more. I definitely don’t want to bludgeon you with financial mumbo jumbo. Let’s just say they’ve got their hands in a lot of pies and we’ll move on.

The beauty of this type of business model is they don’t have to pick the winners in the financial services game in order to be successful. Many businesses jump on a particular horse, betting that it’s going to win the race only to find out the company they’ve aligned themselves with isn’t even going to make it to the finish line. SEI has a deep and diverse customer base that will ensure future growth for years to come. Sometimes the growth won’t meet analysts lofty expectations, as happened in the first quarter, when earnings missed by a penny sending the stock down more than five percent. That’s fantastic. Use these dips to buy more of this well run company.

In my opinion, the sky is the limit for SEI. The next 20 years will see tremendous need for financial services given the transfer of wealth taking place today and into the future. Individuals realize they alone are responsible for their financial future and shall seek out advisors to make this happen. Corporations, interested in employee productivity, will do what they can to keep their staff happy and engaged in their work; a much easier task when employees know they’ll be able to retire when they want doing what they want. The growth in the financial services industry has only begun.

Here are some things I like about SEI:

• The company’s return on invested capital is 37 percent compared to 12 for State Street (STT) it’s much bigger competitor.
• In March, they announced an additional $50 million dollar stock buyback to go along with the $40 million purchased during the first three months of 2007.
• Since 1997, sales have gone up every year but one and EBIT is up every year for the last nine.
• The founder and CEO of the company, Al West, owns 20 percent of the stock.
• Long-term debt is just 10 percent of shareholder equity.
• The stock has a 10-year annualized return of 33 percent.
• Their free cash flow is virtually the same as State Street’s at $200 million, even though State Street has nine times the revenue.

SEI’s stock since 2000 has been up and down like a yo-yo. In 2000, it shot up 182 percent and then proceeded to do little until 2006 when it rang up 62 percent gains. So far, year to date it’s down two percent while the markets have been on a tear and currently it’s trading about where it was in December. In my opinion, this is a perfect time to be buying with the intention of holding until you’re old and grey.  

Curious Ideas for Everyday Investing – let us Rock your Stock research!