2 Financial Sector Stocks - MQG, MFG

Macquarie Group Limited

Banking and Financial Services’ Net Profit Rose 3%: Macquarie Group Limited’s (ASX: MQG) Banking and Financial Services generated net profits amounting to A$296 million in the 1H 2019 which reflects the rise of 3% on the YoY basis while the group’s overall net profit was also up.The favourable momentum in the results was supported by Australian loan portfolio and funds on platform. The higher income with regards to the deposits growth also supported the performance. On the other hand, the favourable momentum got partly offset by Australian Government Major Bank Levy and expenses with regards to deployments which have been made towards technology projects as well as headcount.


Banking and Financial Services (Source: Company Reports)

The first half of 2019 also consists of the costs which were incurred towards the activities focused towards bringing together private wealth businesses as well as private bank.  

Decent Standing from Ratios Standpoint: Macquarie Group happens to possess decent footing when it comes to the key ratios. The group had an efficiency ratio of 71.3% in FY 2018 which implies the YoY growth of 0.6%. The group also witnessed improvement in the operating leverage on the YoY basis in FY 2018. The bank’s operating leverage in FY 2018 stood at -0.8% which implies the growth of 1.6% YoY.

Short-term outlook would be sensitive to Market Conditions, Foreign Exchange Impact: As demonstrated by Macquarie Group’s 1H 2019 media release, there are anticipations that the company’s FY2019 results would be witnessing a rise of circa 10% as compared to FY 2018.

However, the factors to which the short-term outlook would be sensitive to are market conditions, geographic composition of income, foreign exchange impact as well as changes in the regulations. The short-term outlook would also remain sensitive to completion rate of transactions as well as period-end reviews. Then, news around many advisers leaving the wealth division of the group are adding to concerns over strategy and fees etc.

Stock Analysis: On the daily chart of Macquarie Group Limited, Moving Average Convergence Divergence or MACD has been applied and the default values were considered. As per the observation, the MACD line has crossed the signal line and is moving upwards which signifies some bullish momentum.

However, the performance of the stock moving forward would be sensitive to the market conditions, geographical composition of income and numerous other factors.As a result, the market players need to closely watch the stock at the current market price of A$110.570 per share.
 

Magellan Financial Group Limited

Infrastructure Equities FUM Rose in November 2018: Magellan Financial Group Ltd (ASX: MFG) ended November 2018 with the total FUM amounting to $72.1 billion which implies a marginal decline as compared to October FUM. Of the total November 2018 FUM, the global equities formed $54.2 billion while the Australian equities formed $6.4 billion. However, the infrastructure equities formed $11.5 billion of the total November 2018 FUM which implies a marginal rise as compared to the previous month. At the end of October 2018 FUM, Infrastructure Equities formed $11.4 billion.


Total FUM (Source: Company Reports)

The company’s average funds under management has been witnessing the CAGR of 31.2% over the previous five years which happens to represent decent growth. Moreover, the management of the company is of the view that the balance sheet happens to be in the robust condition. They also stated that the company would be able to aid the organic growth initiatives on the back of decent capital footing.

Understanding the Key Margins: Magellan Financial Group happens to be in the strong footing when seen from the perspective of key margins.The company’s gross margins were 95.8% in FY 2018 which implies the rise of 1.2% on the YoY basis. The company’s EBITDA (or Earnings before interest, tax, depreciation and amortization) margin also witnessed the rise from 75.9% in FY 2017 to 78.0% implying an increase of 2.1%.

Robust Balance Sheet to Primarily Support Magellan Moving Forward: The management of Magellan Financial is of the view that there happens to be substantial organic prospects of growth.These prospects can support the company as it has strong capital backing. In addition, the management of the company stated that the business happens to be capital light and the requirement of the capital is lower.

Stock Analysis: On the daily chart of Magellan Financial Group, Relative Strength Index or RSI has been applied. For the purposes, the default values have been taken into consideration. After the careful observation, it was seen that the 14-day RSI has started to rebound from the oversold levels. This rebound signifies the bullish momentum. Therefore, there are expectations that the stock price might witness an upward momentum moving forward.

As a result, we maintain our “Buy” rating on the stock at the current market price of A$23.530 per share.
 

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