Rea Group Limited (ASX: REA)

REA Details

Delivering on strategy: REA Group Limited, an online property advertising company, provides property-related services on Websites and mobile applications in Australia, Europe and Asia. The company has been able to generate decent profit margins with operating margin improving significantly to 48% as at December 2017 against -7.7% as at June 2017. Return on equity has been up to 15.9% as at December 2017 against 15.4% as at December 2016. During the nine months ended March 31, 2018, REA Group repaid A$120 million (approximately $93 million) of the A$480 million revolving loan facility it used to fund the iProperty acquisition, corresponding to the sub facility due December 2017. Remaining borrowings under the facility were A$360 million (approximately $275 million). In February 2018, the Board of Directors declared a semi-annual cash dividend of $0.10 per share for Class A Common Stock and Class B Common Stock and this was paid on 18 April 2018. The Company paid gross income taxes of $116 million and $89 million during the nine months ending on 31 March 2018 and 2017, respectively, and received tax refunds of $6 million and $1 million, respectively. During the three months’ period ending on 31 March 2018, the Company sold its investment in SEEK Asia for $122 million in cash and recognized a $32 million gain. In May 2018, REA Group entered into an agreement to acquire Hometrack Australia Pty Ltd for A$130 million (approximately $100 million) in cash, which will be funded with a mix of cash on hand and debt of A$70 million (approximately $55 million). In last six months, the stock prices jumped up by 14.86 per cent and 14.01 per cent in last one month. By looking at the overall scenario, we give a "Hold” recommendation at the current market price of $91.35.
 

Magellan Financial Group Limited (ASX: MFG)

MFG Details

Decent funds management business: Magellan Financial Group, a specialist funds management business, has gross margin of 94.7% as at December 2017, which is above industry median. The group generated net outflows of $268 million, which included net retail outflows of $64 million and net institutional outflows of $204 million in April 2018. While in March 2018,Magellan generated net inflows of $648 million, which included net retail outflows of $20 million and net institutional inflows of $668 million. There was an increase of 25 per cent in average funds under management for the six months period ending on 31 December 2017 as compared with the previous corresponding period.FMR LLC and few entities ceased to be the substantial holder since 22 May 2018. The Group issued 22,061 fully paid Ordinary Shares at an issue price of $24.93 per share under MFG’s Employee Share Purchase Plan. The Group also terminated its three-year partnership with Cricket Australia as the naming rights sponsor of the Australian Men’s Domestic Test Series at the back of the controversial deed by the leadership of the Australian Men’s Test Cricket Team that broke the rules with a clear intention to gain an unfair advantage during the third test in South Africa. For the half year ended 31 December 2017, the Group’s funds management business generated profit before tax of $138.5 million ($110.4 million for the six months to 31 December 2016). Profit before tax and before performance fees grew by 21 per cent to $129.0 million ($106.8 million for the six months to 31 December 2016).


Institutional Client Diversity (Source: Company Reports)

The Group is planning to acquire 100 per cent of Airlie through the issue of shares in Magellan to Airlie’s shareholders at the completion of the acquisition and it is expected that the transaction will be accretive to its earnings per share. The Group remains focused on developing its retail business and executing its self-directed investor strategy and has made some important progress in the past six months. It was worth noting that the interim dividend increased by 16 per cent to 44.5 cents as the Group now excludes any performance fee component in the interim dividend amount; and excluding the performance fees, the interim dividend increased by 20 per cent. The business continues to operate efficiently with the cost to income ratio (excluding performance fees) of 28.1 per cent. The Group completed the $1.57 billion of the initial public offering of the Magellan Global Trust which was the largest closed-end fund raising in Australian history. The stock was down by 8.59 per cent in the past six months and rose up by 2.71 per cent in the past one month. We give a “Buy” recommendation at the current market price of $23.54, given the long-term potential while some short-term headwinds might prevail.

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