Treasure Chest: Generation Development

This story features GENERATION DEVELOPMENT GROUP LIMITED. For more info SHARE ANALYSIS: GDG

FNArena’s Treasure Chest reports on money making ideas from stockbrokers and other experts.

Whose Idea Is It?

Morgan Stanley

The subject:

Generation Development’s ((GDG)) latest quarterly report underscored the company’s momentum in the strategic growth area of tax-effective Investment Bonds with strong input from Lonsec. The company is considered well positioned to generate operating leverage with M&A options, assisted by underlying tailwinds from a retiring population.

More info:

In the sometimes hit-and-miss world of investment and retirement solutions services, Generation Development has been elevated to one of the standout companies on the ASX, boosted by yet another strong 2Q25 trading update.

Morgan Stanley has extended its positive tone with no less than two updates following the quarterly activities report, stressing a “keep” Overweight, Buy-equivalent, plus a general revision of its positive investment thesis.

In 2Q25, the company grew funds under management (FUM) 7.1% on the previous quarter to $3.84bn, equaling growth of 31% year-on-year, which came in above Morgan Stanley’s estimate by 2.5%.

Net inflows jumped 112%, and gross inflows rose 61% versus the previous corresponding period.

A record performance from Generation Life Investment Bonds and Lonsec made up the secret sauce during the quarter.

Morgan Stanley tests its positive thesis, emphasising the company offers an “attractive risk-reward” with forecast compound average EPS growth of 32% over the next three fiscal years, valued at a price-to-earnings multiple of 41x FY26 earnings.

The broker dissects the company’s growth levers.

The total addressable market is expected to double by FY29 as advisers look for more scale and efficiencies. Both Generation Development and Lonsec possess optionality to leverage robust market positions to obtain market share growth organically and via M&A.

Investment or insurance bonds are a tax-effective investment vehicle for long-term savers. Generation Development’s investment bonds, with a growing suite of investment alternatives, offer a tax-efficient product as an alternative to superannuation. The fixed cost base offers tremendous earnings leverage as the FUM grows.

Importantly, the FUM is sticky, Morgan Stanley details, as the investment bonds are most tax-efficient when held for 10-plus years.

The proposed 30% superannuation concessional tax rate versus 15% currently on super earnings over $3m, whether implemented or not, shows the “unpredictability” of super, providing more positive macro tailwinds for investment bonds.

Research is lower growth, but Morgan Stanley counters Lonsec delivers an industry-leading market position with highly predictable earnings streams.

The broker points to even higher growth potential in annuities than investment bonds as Australians transition to the retirement phase. Lonsec carries potential earnings upside risks, according to the analyst.

Pointing to further impetus for share price gains, Morgan Stanley believes Generation Development is well positioned to be considered for inclusion in the ASX300 at the next quarterly review on March 7.

An acceleration in net inflows and strategic earnings-accretive acquisitions are poised as additional potential positives.

Morgan Stanley’s positive thesis is essentially backed by other daily-monitored brokers at FNArena as they also couldn’t hide their enthusiasm for the company post recent market update.

Morgans upgraded the stock to a Buy-equivalent from Hold with a $4.75 target price, stating Generation Development is a great story and management has executed well.

Ord Minnett is also Buy-rated with a $4.50 target price and called the update “excellent”.

Morgan Stanley remains Buy-equivalent rated with a $4.75 target.

Non-daily monitored broker, Moelis, views the company as going from strength to strength with a Buy rating and a $4.91 target, noting earnings were upgraded following the update.

Investors not yet familiar with Generation Development might experience a light bulb moment if they realise this is the old Austock Group, founded in 1991 and rebranded in March 2018. Gone are the equities trading and team of share market analysts, instead the company nowadays operates in two main segments: Benefit Funds Management and Funds Administration.

Generation Development provides administration and management services to the Benefit Funds of Generation Life Limited, as well as administration services to institutional clients.

The shares have undergone a notable re-rating post covid with the price rising from near $1 in 2020 to circa $4.34 today.

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