Stocks’ Details

Magellan Financial Group Limited

Stock rallied ~80% in the last 1-year: Magellan Financial Group Limited (ASX: MFG) offers to invest in a specialised and focused global equity fund that invests in listed stocks on exchanges around the world. MFG aims to deliver investors a cash distribution yield of 4% per annum. The company released fund under management update for March 2019 mentioning the net inflows at $1,177 million, includes net retail inflows of $357 million and net institutional inflows of $820 million. Total FUM stood at A$79,442 million in March 2019 as compared to A$76,030 million in February 2019.

Magellan Asset Management Limited, in its capacity as the responsible entity of the Magellan Global Trust, advised that the Unit Purchase Plan offer got closed on 6 March 2019.

Financial Performance in 1HFY19: Average FUM grew 35% to $72.1 billion which drove a 28% increase in management and services fees to $228.1 million. A marginal downtick in margin was led by a change in the mix of FUM following the Airlie acquisition in early 2018. The statutory NPAT jumped significantly with a whopping growth of 225% to $173.5 million in 1HFY19.


Interim Results Highlights (Source: Company Reports)

Stock Recommendation: At CMP of $40.000, the stock is trading at price to earnings multiple of 21.14x. Annual dividend yield for the stock comes in at 4.1%. The stock is trading towards its 52-week high of 40.250 per share.

Looking at the price movement, the stock has appreciated significantly with 80.26% gain for 1-year. The stock has performed well with 71.16% on YTD basis, 51.29% on 6-months basis and 50.15% on 3-months basis. Looking at the price to book value multiple, the stock is trading at 10.5x against 1.2x of its industry median, suggesting a stock is overvalued at the current juncture.

Considering the sharp run-up in the stock in the last 1-year leads us to suggest investors book profit at the current level. Hence, we recommend a “Sell” rating on the stock at the current market price of $40.000 per share (up 2.485% on 12 April 2019).
 

AMP Limited

Weakness in Business Persist: AMP Limited (ASX: AMP) is in wealth management with an expanding international investment management business and a growing retail banking business.

AMP recently announcedthe appointment of Ms. Debra Hazelton as a Non-Executive Director for the company, effective from 15 June 2019. AMP also made an announcement that on completion of the sale of AMP Life to the Resolution Life, Trevor Matthews would be remaining on AMP Life Board as an AMP nominee and retire from the AMP Limited Board.

Financial Performance for FY18: Underlying profit for FY18 at $680 million was down 35% from $1,040 million in FY17 reflecting the impact of businesses subject to sale, with lower operating earnings of retained businesses than in 2017.The earnings for Australian wealth management business came in at $363 million, down 7% from FY17. This de-growth was on account of higher margin compression from MySuper repricing in fourth quarter of 2018 and lower revenues from weaker investment markets.


Key Metrics (Source: Company Reports)

AMP group’s 85% share of AMP Capital’s 2018 operating earnings amounted to $167 million, reflecting 7% rise from $156 million in 2017. AMP Capital’s operating earnings got supported by strong fee income growth of 7%, partially offset by a 10% increase in controllable costs.

Operating earnings for AMP Bank recorded a growth of 6% to $148 million in FY18 from FY17. Growth was largely driven by residential mortgage book growth, lower investment platform deposit costs. However, higher funding costs, additional loan provisions offset the growth. New Zealand wealth management was almost flat in terms of operating earnings decreasing by $1 million to $53 million in 2018 mainly because of lower wealth management income.

Australian and New Zealand wealth protection and mature recorded operating loss of $3 million in FY18, decreased by $334 million on the YoY basis. Higher than expected claims, 11% decrease in profit margins, capitalised losses etc. were the key reasons behind such losses.

Stock Recommendation: Currently stock is trading at P/E multiple of 223x with market capitalization at $6.51 billion and dividend yield at 6.28%. The stock price has eroded significantly at 53.54% in last 1-year.

By looking at its performance in FY18 and current trading level, the stock can be avoided at the current market price of $2.230 per share (up 0.905% on 12 April 2019).
 

Suncorp Group Limited

Special Dividend From The Sales Proceed Of Australian Life Business: Suncorp Group Limited (ASX: SUN) is in the business of provision of insurance and banking and wealth products and services in Australia and New Zealand.

The company recently announced to pay a fully franked, special dividend of 8 cents per share after successfully completing the sale of its Australian Life Business to TAL Dai-ichi Life Australia Pty Ltd.Ex-date for same was 01 April 2019 and the payment date shall be May 3, 2019.

Financial performance for 1H FY19: Top-line growth for the Group came in at 3.2% on account of AU Home and Motor Insurance GWP growth of 3.0%, Bank lending growth of 2.4% and NZ General Insurance GWP growth of 9.2%.

Result Highlights (Source: Company Reports)

Looking at the segment-wise performance– 

Insurance: NPAT for Insurance business came in at $133 million in 1HFY19 as compared to $234 million. Insurance’s (Australia) profit after tax fell 43.2%, with an improvement in underlying margins offset by a rise in natural hazard claims costs as well as the negative impact of investment market movements.

Banking & Wealth: The segment delivered PAT at$183 million reflecting a marginal 1.1% fall. The home lending grew 2.2% within a competitive and slowing mortgage market. Business lending witnessed a rise of 4.3%, reflecting growth in commercial lending and a reduction in the agribusiness portfolio.

New Zealand: In New Zealand, there was strong top-line growth across all portfolios has aided 82% improvement in New Zealand NPAT. The result reflects the benign weather and favourable working claims experience. The outlook for the New Zealand business happens to be positive, with market growth expected to moderate over the medium term.

What to expect: Natural hazards above allowance, unforeseen regulatory costs, investment performance etc have impacted the performance in 1HFY19 and will be visible in FY19 reported cash ROE. The management expects investment in regulatory projects and system enhancements to exceed the original estimate of ~$90 million by $50 million. The company’s FY19 underlying operational performance is tracking in line with the expectations.

Stock Recommendation: At CMP of $13.450, the stock is trading at price to earnings multiple of 20.26x with the market capitalization of $17.26 billion and annual dividend yield at 4.91%.

Looking at the price movement of the stock, the stock posted the return of 11.35% in the past three months and, on a YTD basis, the return stood at 9.28%.

Price to Book value for the stock at 1.27x is significantly below to the industry median of 2.86x. Considering the above factors, our “Hold” recommendation on the stock remains intact at the current market price of $13.450 per share (up 1.204% on 12 April 2019).
 

Comparative Price Chart (Source: Thomson Reuters)  
 

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