Magellan Financial Group Limited

Overvalued at the Current Juncture: Magellan Financial Group Limited (ASX: MFG) has an engagement in offering international investment funds to high net worth and retail investors in Australia and New Zealand, and institutional investors globally.

The company recently announced an amendment to the terms of the Executive Employment Agreement between MFG, Magellan Asset Management Limited (a controlled entity of MFG) and Dr Brett Cairns, Chief Executive Officer. The amended Agreement was executed by parties on 15 July 2019 and will have effect from 1 July 2019. As per the agreement, the Annual base salary of CEO will increase to $1,545,000 (inclusive of superannuation), and the fixed remuneration to increase by 3% each year. Dr Cairns would be eligible to receive variable remuneration of up to 50% of fixed remuneration based on performance metrics which, the Board believes are important to the long-term success of the business. Subject to approval by shareholders, Dr Cairns would be eligible to participate in a one-off Share Purchase Plan (SPP) offer of up to $5,000,000 with a tenure of 10 years. Arrangements relating to Dr Cairns’ remuneration package will be reviewed in 3 years’ time.

In another update, MFG published Funds Under Management and Performance Fee update as on June 30, 2019. The total FUM at the end of June 30, 2019 was reported at $86,718 Mn as compared to $82,759 Mn at the end of May 31, 2019. The Fund Under Management comprised Global equities, Infrastructure equities and Australian Equities at $64,020 Mn, $15,162 Mn and $7,536 Mn respectively.



 
H1FY19 (ended on December 31, 2018) Financial Performance: Average funds under management increased by 35% on pcp to $72.1 Bn. The Adjusted net profit after tax increased by 62% on pcp to $176.3 Mn. Interim dividend was reported at 73.8 cents per share, which was an increase of 66% as compared to the previous corresponding period.


H1FY19 Key Financial Metrics (Source: Company Reports)

What to expect: Equity markets are little volatile over present geo-political tensions and is expected to cool-down after some time. Investors may have to limit their expectations for returns over their portfolios and consider a long-term view.

Stock Recommendation: Magellan Financial’ share generated a positive YTD return of ~148%. It is presently trading at its 52 weeks high level of 59.740, which increases the probability for a correction in the near term. Its gross margin, EBITDA margin and net margin for H1FY19 stood at 97.1%, 82.2% and 63.1%, better than the industry median of 95.8%, 60.1% and 20.4%, respectively. Its current ratio for H1FY19 stood at 9.81x, which is better than the industry median of 1.50x. On the valuation front,its EV/Sales and Price/Book multiple for TTM stand at 17.9x and 15.5x, higher than the industry median of 4.6x and 1.3x, respectively, indicating an overvalued position at the current juncture. Hence, considering the aforesaid facts and current trading level, we recommend an “Expensive” rating on the stock at the current market price of $58.340, up 0.586% on July 22, 2019.
 

Fortescue Metals Group Ltd

First Ore on train Expected in December 2020: Fortescue Metals Group Limited (ASX: FMG) is engaged in the exploration, development, production, processing and sale of iron ore. The Management of FMG, recently advised about the official sod turning of the Eliwana Mine and Rail Project valued at US$1.275 billion in the Pilbara, Western Australia. The project includes the construction of 143 km of rail, a new 30mtpa dry OPF (ore processing facility), and infrastructure. The Management expects first ore on train in the month of December 2020.

March ’19 Quarter Key Highlights: The total shipments stood at 38.3mt, including 3.8mt of West Pilbara Fines with C1 cost of US$13.51/wmt. The average strip ratio at 1.4 was in-line as compared to the prior comparable quarter. 


Q3FY19 Production Summary (Source: Company Reports)

H1FY19 Financial Performance: The company reported a net profit after tax and underlying EBITDA of US$644 million and US$1.6 billion, respectively.


FMG Key Metrics (Source: Company Reports)

What to Expect: For FY19, the Management expects 165-173mt in shipments, inclusive of West Pilbara Fines product of 8-10mt. C1 costs are likely to be in the range of US$13-13.50/wmt with an average strip ratio at 1.5. Total capex is expected at US$1.2 billion for FY19, including FMG’s share of the Iron Bridge Magnetite Project. Depreciation and amortisation are estimated at US$7.10/wmt for FY19.

Stock Recommendation: FMG’s share generated a positive YTD return of 128.55% and is trading at close to a 52-week high level of $9.55 with PE multiple of 22.0x. Its EBITDA margin and net margin for H1FY19 stood at 44.9% and 18.2%, better than the industry median of 35.8% and 13.3% respectively, which indicates a decent fundamental of the company. As per the ASX, itsannual dividend yield has been noted at 3.56%. Hence, considering the aforesaid facts and current trading level, we recommend a “Hold” rating on the stock at the current market price of $8.900 up 2.299% on July 22, 2019.
 

WiseTech Global Limited

Trading at Higher Level: WiseTech Global Limited (ASX: WTC) has an engagement in providing software to the logistics services industry, globally. The company recently announced the issuance of 21,025new shares at $30.45 per share. The shares are issuedto part-fund earnout considerations in relation to the acquisition of shares in EasyLog SAS.The shares are subject to a voluntary escrow period of 12 months, during which they cannot be sold or offered for sale.

On June 19, 2019, the company announced about the issuance of fully paid ordinary shares to WiseTech Global Limited Employee Share Trust. The issue comprised of 850,000 shares at an issue price of $28.72 per share. In April 2019, the company also completed the acquisition of Xware, a provider of messaging integration solutions, to improve its messaging gateway and enhance control over future development.

H1FY19 Key Highlights: During the period, total revenue amounted to $156.7 million, up 68% on pcp. Net profit attributable to shareholders was reported at $23.1 million, up 48% on 1H18.Performance during the first half, demonstrated an annual attrition rate of less than 1% by CargoWise One customers, a rise in EBITDA by 52% and recurring revenue of 100% for CargoWise One platform, against the prior corresponding period.


H1FY19 Key Metrics (Source: Company Reports)

What to expect: The company revised the earlier FY19 revenue guidance range of $322 million - $335 million to $326 million to $339 million, with a growth rate between 47% to 53%. EBITDA guidance was also revised from $102 million - $107 million earlier, to $100 million to $105 million, with growth in the range of 28% - 35%.The guidance was revised to incorporate the impact of acquisition of Containerchain, a container optimisation solutions provider.

Stock Recommendation: WTC’s share generated a positive YTD return of 75.87%. Its EBITDA margin for H1FY19 stood at 28.5%, better than the industry median of 26.5%. Its net margin for H1FY19 stood in line to the industry median of 14.7%. However, on the valuation front, its EV/Sales and Price to Book Value multiple on TTM basis stand at 27.8x and 24.6x, respectively, higher than the industry median of 4.3x and 3.0x, indicating overvalued position at the current juncture.Currently, the stock is trading close to its 52 weeks high level of $31.240 with high PE multiple of 184.88x. Hence,considering the aforesaid parameters, valuations, and current trading level, we give an “Expensive” rating on the stock at the current market price of $30.750, up 2.671% on July 22, 2019.

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