Mainstream Group Holdings Limited

Renewal of Agreement: Mainstream Group Holdings Limited (ASX: MAI) happens to be a global provider of full service fund administration and custody services. The market capitalisation of the company stood at A$67.07Mn as on 25^th June 2019. Today, on 25^th June 2019, the company, via a release, announced that the administration services agreement has been renewed between Magellan Asset Management Limited and Mainstream Fund Services Pty Ltd. In addition, the renewed agreement is for an initial term of 5 years with an automatic renewal for a further five years. However, the agreement might be terminated with 12 months’ written notice. Macquarie Group Limited and its controlled bodies corporate have become an initial substantial holder of the company with a voting power of 5.07%, since 19^th June 2019.

The company stated that it is one of the leading non-bank fund administrators in Asia-Pacific on the back of previous acquisitions and global operating model. The company made a various investment in Asia-Pacifica and North America in order to take benefit of its strong sales pipeline. The company added 29 new custody services funds and 40 new Private Equity funds in 1H FY19. In 1H FY19, the company’s revenue stood at $24.9Mn, reflecting a growth of 32% on pcp (as shown in the below picture).


Half Yearly Results (Source: Company Reports)

Future Aspects: The company’s current market opportunity is estimated to USD 37 trillion in assets under management and growing. The global trends for the industry are extremely positive. The company’s core fund services business has continued to perform and grow strongly, and it expects revenue from this underlying business to witness a rise of 22%, to around $46Mn in FY19 from $38Mn in FY18.

Stock Recommendation: MAI is continuing to evaluate accretive strategic acquisition / ‘lift and shift’ opportunities.The company reconfirms the FY19 guidance of $7.5m to $9.0m EBITDA and $50m to $55m revenue. The current ratio of the company stood at 2.86x in 1H FY19 against the industry median of 1.51x. This implies that the company is in a decent position to address the short-term obligations in comparison to the broader industry. On the stock’s performance front, it had generated a return of 6.12% in the time span of six months. The stock is trading with a higher P/E of 57.780x with an annual dividend yield of 3.37%. Given the backdrop of a mixed scenario, we advise investors to closely watch the stock at the current market price of A$0.590 per share (up 13.462% on 25^th June 2019).
 

Bellamy's Australia Limited

Approval by SAMR: Bellamy's Australia Limited (ASX: BAL) is distributor and producer of branded food products. The market capitalisation of the company stood at ~A$883.14Mn as on 25^th June 2019. Recently, the company, via a release, updated the market that SAMR had released the series of approvals, three of which is related to the approval of new Bellamy’s branded formulation-series which is to be produced at the ViPlus Dairy facility located in Toora, Victoria. As per the release dated April 24, 2019, BAL would make an investment of $4Mn-$6Mn in order to transition the product and to secure long-term production capacity with ViPlus.

A Quick look at 1H FY19 Presentation: There was a run-down of trade inventory by approximately $10M in 1H19 prior to the transition in order to ensure clean change-over and improved channel economics. The group’s cash balance witnessed a rise of $7Mn and stood at $95Mn in 1H FY19. The company continues to maintain zero debt levels along with the access to a debt facility of $40Mn. It can be said that these factors might help the company in terms of gaining traction among the market players moving forward.

 
Group’s Net Cash (Source: Company Reports)

What to Expect: The company expects group revenue to be in the range of $275-300Mn. The group’s EBITDA margin for FY 2019 has been revised to 18-22% on a normalised basis, which is reflecting increased investment in marketing and the China team.  It is confident in medium-term rebrand and portfolio opportunity.

Stock Recommendation: There was a decline of 24.9% in revenue in 1H FY 2019 on pcp basis because of SAMR delay, reduced trade inventory and slower category. The current ratio of the company stood at 4.84x in comparison to the industry median of 1.42x. This represents that the company is in a decent position to address its short-term obligations. With respect to stock’s past performance, it had generated a return of 14.39% in the time span of six months. Hence, considering the above-stated facts and current trading levels, we give a “HOLD” recommendation on the stock at the current market price A$7.950 per share (up 2.054% on 25^th June 2019).  

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