Magellan Financial Group 

Strong Fundamentals finding support from FY 18 Performance: Magellan Financial Group Ltd (ASX: MFG) with the market capitalization of $4.88 billion, beta of around 1.04, was trading at a level of A$27.7. The company has an immediate support at $25.1 and resistance at the level of $28.1. MFG in FY 18 has reported 37% growth in the profit after-tax profit (excluding the one-off net offer costs of the Magellan Global Trust and non-cash amortisation) to $268.9 million. The company in FY 18 has revised the dividend policy and increased the payout ratio to 90-95% of the funds management business net profit after tax from the prior payout of 75-80%. As a result, there will be approximately a 20% rise in the dividend payout ratio moving forward. The total dividends in FY 18 is up 57% to 134.5 cents per share. Moreover, in FY 18, MFG had completed the $1.57 billion initial public offering of the Magellan Global Trust, which is the largest closed end fund raising in Australian history, and had acquired Frontier Partners in the United States and Airlie Funds Management, a leading Australian funds management business. Meanwhile, MFG stock has risen 21.89% in three months as on September 11, 2018. The company gets benefit from falling Australian dollar, which is expected to fall further as in 2019 US rates are expected to be above 3%. Based on the foregoing, we give a “Hold” recommendation on the stock at the current price of $27.700.


FY 18 Financial Performance (Source: Company Reports)
 

IOOF Holdings 

Robust growth in funds under management and decent financial performance in FY 18: IOOF Holdings Limited (ASX: IFL) with the market capitalization of $2.81 billion, beta of around 1.09, was last trading at a level of A$8. IFL stock has first support at $8.03 and resistance at the level of $9.41. The next support of the stock is at $7.86, and seems to be clinching on the existing levels. During FY 18, Underlying Net Profit After Tax grew 13% to $191.4 million and Funds under Management, Administration and Advice (FUMA) rose to $125.9 billion, that includes the net inflows of $5.8 billion. The company has declared a final fully franked dividend of 27 cents per share. The company’s earnings have beaten the expectations of market, but the dividend was in line with consensus. In FY 18, IFL witnessed 28% rise in net inflows. Advice net inflows were up 48% to $4.4 billion and platform net inflows were up 34% to $1.6 billion vs FY17. The company has reduced the expenses by $9.4 million and the cost-to-income ratio has changed. Moreover, during FY 18, the company accelerated the economic completion of ANZ Wealth Management. Assuming stable economic conditions, the accelerated completion date and partial payment to ANZ is expected to deliver Earnings Per Share in line with projection. The company expects mid-single digit EPS accretion in FY19, which is expected to increase to ~15%+ in the first full year and over ~20%+ thereafter. Additionally, IFL has successfully completed the NATL acquisition, which is now fully integrated and is delivering synergies. Meanwhile, IFL stock has fallen 9.19% in three months as on September 11, 2018. Based on the foregoing, we give a “Hold” recommendation on the stock at the current price of $ 8.000.
 

AMP 

Update on Credit Rating: AMP Limited (ASX: AMP), with a market capitalization of $9.43 billion, beta of around 1.33, was trading at a level of A$3.23. AMP stock has broken its support at $3.27 while the next support is at $2.70 and has resistance at the level of $4.15. Standard & Poor has affirmed ‘A’ credit ratings for AMP Bank Limited, AMP Limited and AMP Group Holdings Limited. It has lowered the ratings for AMP Life Limited from AA- to A+. This rating agency has removed the CreditWatch with negative implications for AMP Limited, AMP Group Holdings Limited and AMP Life Limited, and has revised their outlook to negative. Further, the outlook for AMP Bank Limited is lowered from stable to negative. However, the change in ratings are not significant to the operations of AMP Life or any other entity in the AMP Group. AMP is well capitalized; and at 30 June 2018, held a surplus over Minimum Regulatory Requirements of A$1.8 billion. The credit ratings assigned to the company by other ratings agencies are unchanged. Meanwhile, AMP for the first half has reported 74% fall in the net profit to A$115 million as the company set aside cash to compensate customers it sold bad advice, and said that the people are still withdrawing money due to a misconduct inquiry during the Royal Commission. The 74% fall in the profit is in line with the market’s expectation, and is still a resilient performance despite Royal Commission impact. The company has posted 5.7% growth in underlying profit due to cost cutting. Additionally, AMP is targeting total FY 18 dividend payout at lower end of 70%-90% guidance range. AMP Capital is expected to post lower performance fees in second half of year as infrastructure funds typically attract fees for annual period ending 30 June. AMP Bank’s loan growth is expected to continue to moderate in the second half of 2018. Net interest margin is expected to fall down on the back of competitive lending environment and increased funding costs. Wealth protection’s 2H 18 profit margins are expected to decline to A$35m due to changes to best estimate assumptions and loss of a large group scheme from 1 July 2018. Therefore,  AMP stock has fallen 8.61% in three months as on September 11, 2018  and is trading at a P/E of 18.28x. Based on the foregoing, we give an “Expensive” recommendation on the stock at the current price of $ 3.23.
 
 
 

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