Opportunity Post Generation Development Sell-Off

Australia | 10:00 AM

Might the sell-off post Generation Development's December quarter update provide investors with a buying opportunity?

• Generation Development investment bond performance well above consensus
• Self-managed account inflows miss by -2%
• Lumpy mandate flows suggest a second half resurgence
• Brokers all stick to Buy ratings

By Greg Peel

Analysts were somewhat taken aback by a -10% fall in the share price of Generation Development ((GDG)) in response to the company’s December quarter update.

We might look to a holiday-thin market this time of year, or the stock’s 9% run-up from mid-December as underlying causes, but all agree the response was overdone, providing an attractive buying opportunity.

Generation Development Group (market cap $2.2bn) is a diversified financial services business. The group has three divisions: Generation Life, which offers investment bonds and lifetime annuities; Lonsec (acquired in 2024), a leading qualitative financial research house; and Evidentia (acquired in 2025), a leader in self-managed accounts (SMA).

The group’s December quarter investment bond (IB) sales, up 57% year on year, were a record and above the previous quarterly high, and comfortably above consensus. IB net flows were up 70% year on year (again a record quarter) and well above consensus.

Consensus was lacking in forecasting IB market movements over the period, assuming -$27m in losses when $17m gains were achieved. IB funds under management were 4% above consensus, up 7% quarter on quarter and 34% year on year.

So Why the Sell-Off?

Evidentia funds under management grew 6% for the quarter, -2% below consensus. That, apparently, was the issue.

The bottom line appears a growing impatience among investors with the Evidentia acquisition. In FY25, Evidentia missed its funds under management target for the year while still growing revenue by 63% year on year, and more than doubling profit.

Management noted at the time the integration of Lonsec and Evidentia had provided some impediment to near-term growth.

Two quarters into FY26 and Evidentia continues to disappoint. However, analysts acknowledge management’s assurance along with the December quarter report that “quarterly inflows were moderated by the timing of scheme commencements [funds management mandates], with several contracted schemes now scheduled to commence [in the March quarter], providing a high degree of confidence of strong inflows in the second half”.

Flows are expected to see a step-change higher in the March quarter as these benefits are realised. By back-ending this, Bell Potter will require a net movement in funds under management of $7.1bn to achieve its forecasts. Bell Potter views 100% client retention as supportive.

Bell Potter believes $7.1bn is achievable in the second half when factoring in the run-rate from the September quarter and adding the benefit of further progress in building the pipeline.

Importantly, the broker views this as probable ex-market movements, including a flagged Xplore/Hub24 ((HUB)) transfer of $1.5bn booked for the March quarter and given there has been no contribution from mandates yet, but more solutions were launched during the quarter and now represent $4.5bn to-date in FY26.

A long-term ambition to partner with Ironbark Asset Management was also announced. This is expected to drive material mandate and inflow opportunities, in addition to the former. Bell Potter views a $5.0bn normal run-rate, plus Xplore/Hub24 and just 13% conversion equates to the required $7.1bn move.

Looking ahead, despite the lumpy quarterly flows, Citi remains attracted to the structural tailwinds in managed accounts and sees Generation Development as well positioned to capture this robust growth over a multi-year period. Meanwhile, notes Citi, the IB business is tracking well above expectations.

Morgans acknowledges Evidentia FUM figures were below consensus again, which follows a pattern of Evidentia FUM missing expectations since this business was acquired.

While Generation Development’s share price has increased strongly over the last year, the re-rating has been supported by improving overall fundamentals, in Morgans’ view.

This broker has been impressed by the recent step-up in the IB sales trajectory, while the acquisitions of Lonsec and Evidentia have given the group a market-leading position in the fast-growing self-managed accounts (SMA) space.

Macquarie notes Lonsec Research and Ratings continues to perform well, with products researched up 1% quarter on quarter to 1,880 and 49 funds on-boarded.

Macquarie continues to expect tailwinds for Lonsec off competitor weakness.

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