No images? Click here 24 June 2020 Changes at Synstrat - Retirement of Graham MiddletonSynstrat wishes to announce that Graham Middleton is to retire at the end of the current financial year. Graham is a founder of The Synstrat Group and has been an integral part of the business providing insights into the dental and veterinary professions with his trademark pragmatism and storytelling. From the beginning, Graham and Bill Dewez (also retired) set out to assist clients with the Synergy and Strategy of their businesses; hence the name Synstrat. They built the Synstrat business on the basis of providing solid accounting services, administration and investment advice for superannuation funds and investment portfolios, and strategic business advice to clients; mainly to owners of dental and veterinary practices and medical specialists. They also committed to not promoting high risk investments such as unlisted property syndicates or timber plantation investments and to avoiding certain life insurance products which were discredited in the marketplace. Over the years, Graham has led the fight against health fund pressure on dentists, corporate buyouts of dental and veterinary practices, and other issues which erode the value of your practice goodwill. Graham has shared his knowledge with many people over the years and has helped clients achieve success in their businesses and in their retirement. Almost every person that has contacted Synstrat has a story of how he helped them seal a deal, minimise practice overheads, or perhaps took them to watch Melbourne Storm play. His passion for his work is obvious to all that he speaks to. While we will miss Graham, the Synstrat team is strong and the continuing directors David Willis, Michelle de la Pierre, Paul Steel, Cameron Darnley and David Collins look forward to continuing his legacy into the future. Our business model remains unchanged and our focus on building client wealth and solving their business issues remains undimmed. Importantly, our approach to investment advice will not alter for clients with investment portfolios and self-managed superannuation funds with Cameron Darnley and Roger Armitage continuing to lead the investment selection process and Jenny O’Brien remaining at the end of the phone for those times when you have queries or wish to execute transactions. In the new financial year, we will discuss with clients how we will continue to meet their business and personal financial advice needs including the team members that will be responsible for servicing their needs in the future. We hope you take this opportunity to thank Graham for his positive input into your practice prior to his retirement at the end of June 2020. THE DIRECTORS AND STAFF OF SYNSTRAT
Graham Middleton Signing Off from Synstrat 26 years ago in April 1994 the Synstrat Group was formed when Graham Middleton and Bill Dewez had negotiated a separation agreement from the SAI Group. Synstrat was established with a group of clients advised by Graham Middleton and some accounting clients of Bill’s. Indeed, today some have been clients advised by Graham for 33 years. Bill retired about 10 years ago. We pledged to clients that we would not advise investment in a number of schemes which had revealed themselves to have substantial faults in the late 80’s and early 90’s, these included not indulging in unlisted property syndication nor advising clients to purchase pine or eucalypt plantations or endowment style life insurance products and other schemes which had been exposed as being high risk. We were approached on a number of occasions to distribute eucalypt and other plantations style investments but were able to resist the temptation of the enormous commissions on offer. A scheme promoter told me that Synstrat had made it impossible for him to sell eucalypt plantations to dentists or veterinarians due to our negative comments in newsletters. We wore that badge with pride. We built an enduring business built on a combination of accounting services plus administration and advice services to client superannuation funds and investment portfolios as well as strategic business advice including practice valuations, practice performance benchmarking and advice on major business issues. Our belief was always that it was the client who was pre-eminent, and indeed, any client could sack us and move on if unsatisfied. This is similar to no dentist or veterinarian actually owning a client, but rather goodwill being based on the probability that a well regarded practice will continue to maintain client relationships and produce income based on the law of big numbers. Ultimately, we all work for our clients. As I approach age 75, with 56 uninterrupted years in the workforce, it is now time for me to move on to another phase in my life and I will be leaving Synstrat soon. I wish to pay tribute to those staff who work with me, Jenny O’Brien, Mary Zaicos and Roger Armitage, to the Synstrat accounting and administrative staff, particularly Bev Vennix the office administrator and to the Synstrat Superannuation administration staff, particularly Alasdair Aikman and Melissa Semmens. I also thank Simone Shelton and Campbell Thompson of Baillieu stockbrokers for the enormous help that they have given with investments particularly in assisting us to make all of the attractive share purchase plans possible for our clients. Without them and their back office staff the beneficial take up of a large number of these offers by a multitude of our clients recently would not have been possible given tight deadlines. The fact is that if clients had not taken them up they would have had their equity diluted and been worse off as a result. Synstrat’s partners will continue the business. Happily, I look forward to a number of strong friendships forged over the years being maintained. This will be my last Dental and Veterinary Newsletter written as a Director of the Synstrat Group of companies. Dentistry Post COVID-19 Contact with many of Synstrat’s dental clients indicate that they are working hard post COVID-19 virus restrictions. This is particularly true of long established practices with strong patient lists. Generally, the patient list of such practices is biased towards older patients and these are generally more financially stable than young families with substantial mortgages. Usually, the majority of the population becomes more secure financially as it ages. Hence, established dental practices are amongst the most secure of small businesses. Veterinary Practices Post COVID-19 - Veterinary Practices Remain Strong Widespread contact with veterinary practice owners indicates that practices performed strongly through the COVID-19 virus outbreak with pet ownership actually increasing and in respect of rural practice the breaking of the drought across much Australia has undoubtedly helped. Continuing Practice Ownership Re Corporate Sale Continuing successful dental practice owners with many years to likely retirement are overwhelmingly better off by continuing to own and operate their own practices rather than selling to a corporate. Sale to a corporate generally is only advantageous where a dentist is within two or three years of intended retirement and should be weighed up against internal sale to employee dentists. The veterinary corporate market is increasingly dominated by VetPartners. Its prices for practice purchases may be near the top of the cycle. Employee Dentists and Corporate Contracts On sale of the practice in which they are working employee dentists should refuse to sign binding agreements with corporates and restrict their own future options unless they are offered a suitable financial inducement to give up their rights to practice elsewhere as either employees or practice owners. Valuation and COVID-19 Virus Bounce Back Recently bank lenders have become risk averse towards lending to buy businesses impacted by COVID-19. In the case of COVID-19 it is going to assist Synstrat in valuation if there is clear evidence in the form of practice banking’s and BAS statements that the practice concerned has recovered its fee levels commensurate to the fee levels that were applying pre COVID-19. Zombie Businesses to be Exposed The phase out of the government’s COVID-19 business assistance including JobKeeper payments and temporary restrictions on insolvency practice means that there is a backlog of small to medium businesses which have in effect been trading while insolvent. Normally, there is a steady stream of such businesses going into liquidation and this is a necessary cleansing mechanism within a market economy. Due to the temporary adjustments to insolvency law and JobKeeper payments businesses which normally would have gone into administration/ liquidation have been kept alive for a further six months or so. The reversion to normal process is likely to see an avalanche of failures late this year. Hence, there is likely to be a delayed impact on the economy. Investment Warning – Unlisted Property Trusts – History Repeating Itself Unlisted property trusts are being peddled to professionals as attractive investments when nothing could be further from the truth. Shiny new buildings will if completed come into a market where:-
This has all happened before, notably in the early 1990’s when a combination of over building of office space and the “recession we had to have” resulted in a massive over supply in commercial office space and a vast number of business liquidations. Some buildings in Melbourne lay vacant or partially vacant for years. Lots of headline rents were misleading as there were often extensive rent free periods to new tenants or other inducements such as landlord paying for fit outs or landlords contributing towards the pay out of existing leases in order to induce tenants to move to their new building. All of this meant that in reality the headline rents and the actual net income were vastly different. It is likely that investors in unlisted property trusts owning yet to be completed new buildings will find out that the net rental income turns out to be far less than anticipated and that as a result when the building is re-valued every two or three years, the value will fall substantially. Worse still there will not be a market to on-sell your investment. This is unlike a listed property trust sold on the stock market where prices adjust quickly to match buyers and sellers. Our verdict – avoid unlisted property trusts; particularly at a time when the demand for both retail and office space will be in substantial decline. Beware of Nice Salesmen – Selling High Rise Units Successful sellers of overpriced unlisted property, as well as high rise off the plan apartments are invariably the nicest people to deal with. Nobody buys off a salesman that they don’t like. It is essential that you politely ignore their sales pitch. There are now huge rental vacancies in inner city apartments with probably far worse to come. Immigration, and hence, population growth has ceased. Youngsters who have lost their job or are sharing a rental unit with somebody who has lost their job hand the keys back to their renting agent and move back to a spare bedroom at mum and dads. Often the only way to get a new tenant into a vacant home or unit is to substantially drop the rent. Dropping the rent drops the value of the property. Don’t believe potential rental figures in projections given to you by sales staff. Smiles Inclusive Limited Smiles remains suspended from the ASX with the last on market trade being at 3.5 cents per share. An off market trade occurred on 5 May 2020 with the buyer being Phi Long Investments Pty Ltd which purchased 9,659,000 shares for $106,249 or 1.1 cents per share. The buyer now owns a total of 20,974,789 shares equating to 14.5% of the company. The notification to the ASX was signed by Nguyen Thu Van Trinh. The seller of 9,659,000 shares was Mike Tim (Mike Timoney) Super Pty Ltd. Mike Timoney was the founding CEO of Smiles Inclusive Limited. Smiles announced to the ASX on 14th April 2020 that Mr Tony McCormack had stood down as CEO of the company with immediate effect. He had previously replaced Mike Timoney as CEO. On the 15th May 2020 Smiles announced that Emma Corcoran, Chief Financial Officer and Company Secretary was leaving the company with immediate effect. We also note turmoil following a number of dentists including joint venture partners terminating their services. It remains to be seen whether Smiles can survive post COVID-19 virus and whether it can have its ASX suspension lifted! Mortgage Investments Paying 8% - Beware! At a time when banks are offering home loans at around 3% to worthy borrowers mortgage style investments offering to pay 8% are signaling high risk. We remember, the failures of Estate Mortgage and Pyramid Building Society in the early 1990’s. Both advertised unusually high interest rates to depositors and both failed. If somebody is offering 8% interest and allowing for that organisation to make a margin on their scheme, they must be lending at a significantly higher percentage to their borrowers. To be borrowing at such high rates the borrowers can only be those who have been deemed to be not credit worthy in the mainstream banking system or are taking a secondary position behind a first mortgage to a primary bank lender; a high risk position. This is common for so called mezzanine finance in respect of building developments. However, if the real estate cycle goes sour and the building doesn’t get completed or on completion only realises sufficient value to pay off the primary mortgage holding bank the mezzanine finance provider doesn’t get paid. These schemes are signaling that there is a high risk involved! Virgin Bond Holders Face Big Losses Currently, investors who thought that they were being smart by investing in Virgin Australia’s corporate bonds because of the high interest rate are finding that they are low ranking creditors facing massive losses. A quick glance at Virgin’s mounting financial losses and hollow balance sheet in recent years which were readily available on the stock market website would have alerted them to the high risk. Greed is blind. Population Growth Heads to Zero with a Housing Hit to Follow Australia’s population growth is heading to near 0% for the first time since World War I due to restrictions on migration from COVID-19 virus. Over three months of March, April and May there were 32,000 more departures than arrivals into Australia excluding tourist movements. With the natural rate of births in Australia at just over 30,000 for a given three month period the population growth is about zero. The record low growth is going to echo through the economy in areas of housing demand, consumption and skills. The high rise apartment market is particularly hard hit. Best wishes to all dentists and veterinarians, GRAHAM MIDDLETON The Synstrat Group provides Accounting, Financial Services, Business Advice, and Financial Advice. Synstrat P. 03 9843 7777 If you are not the intended recipient of this communication please delete and destroy all copies of this message and telephone Synstrat on +61 3 9843 7777 immediately. If you are the intended recipient of this communication you should not copy, disclose or distribute this communication without the authority of Synstrat. Any views expressed in this communication are those of the individual sender, except where the sender specifically states them to be the views of Synstrat. If you do not wish to receive this email in future, please reply to the sender requesting termination of service. |