Magellan Financial Group Limited (ASX: MFG)

MFG Details

Long-Term Potential Intact: 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.  Besides this, FMR LLC and the entities became the substantial holder of the Group since May 22, 2018 by holding 4.98 per cent of the voting power. In April, Magellan experienced net outflows of $268 million, which included net retail outflows of $64 million and net institutional outflows of $204 million.Further, the funds under management modestly increased by 1.4% (MoM) and amounted to $66,199 Mn in April 2018 from March 2018. During the first half of the year, the group has entered into an agreement to acquire Frontier Partners and Airlie Funds Management. The objective of these strategic acquisitions has allowed the Group to broaden its retail business into Australian equities via a first-class fund manager with a proven track record. We expect that these transactions will be modestly accretive to EPS in the first full year and provide an attractive return on capital. Based on past five-year average, MFG has generated a decent RoE above the industry median. We expect that the same trend will continue in future as well.


Funds Under Management as on 30 April 2018 (Source: Company Reports)

During the first half of the year, the group had done some key changes to refocus on Investment team. This included integrating macro analysis into the financials team and healthcare research into the franchise’s team. The group also decided to cease the development of the international (non-US) low carbon strategy. These changes resulted in several people leaving the firm. Based on this, Group employee expenses might increase at the lower end of the 5-8% guidance for the 2018 financial year. This excludes the impact of additional employee expenses relating to the acquisitions of Frontier and Airlie. The stock was down by 6.18 per cent in the past three months and currently trading above its 52-week low levels. Looking at long-term potential into the business model coupled with balance sheet position and solid inflows from existing institutional clients that have reserved capacity into the global equities strategies over the next 12-24 months, we maintain our “Buy” recommendation on the stock at the current market price of $ 22.74.
 

MFG Daily Chart (Source: Thomson Reuters)
 

Pendal Group Limited (ASX: PDL)

PDL Details

Global uncertainty impacting the stock:With the Board’s unanimous recommendation that shareholders vote in favour of the resolution to change the Company’s name as a Pendal Group Limited from BT Investment Management Limited, the group started trading on the Australian Securities Exchange (ASX) under the updated ticker PDL. Besides this, the group posted 45% growth of Statutory NPAT to $114.8 Mn in 1HFY18 as compared to the previous corresponding period. Cash NPAT substantially increased by 30% to $114.5 Mn in 1HFY18 on pcp basis while Cash earnings per share grew by 28% over the same period. This was driven by strong net inflows and higher markets on average over the course of the year. The average FUM increased by 14% to $98.6 Bn due to improved global market with the average level of the MSCI All Countries World Index in local currency terms surging up 16 per cent, and the average level of the S&P/ASX 300 Index surging by 7% compared to pcp. The Performance fees for 1HFY18 were 70% higher to $47.6 million.


1HFY18 Financial Highlights (Source: Company Reports)

Further, the group has recorded gross margin of 99.1% as at March 2018, which is above industry median. RoE and ROIC stood at 14% and 13.6% respectively in 1HFY18, representing good return within the industry and expecting same performance in years to come. It is also worth noting that Pinnacle Investment Management Group Limited and its subsidiaries, who is a substantial holder of the Group decreased its respective holding on 21 May 2018 from 11.61 per cent of the voting power to 10.49 per cent of the voting power. Moreover, Hyperion Asset Management Limited, a substantial holder of the Company changed its substantial holding in the Company since 21 May 2018 from 7.54 per cent of the voting power to 6.50 per cent of the voting power. The stock price thus had fallen in the last one year and was down by 12.16 per cent and further down by 2.8 per cent on June 01, 2018. Despite the dip, the stock looks “Expensive” at the current market price of $9.720, and it might be better to wait and watch for impact from the global uncertainty along with foreign currency movement.
 

PDL Daily Chart (Source: Thomson Reuters)
 

Hub24 Limited (ASX: HUB)

HUB Details
 
Expanding the distribution capabilities: HUB24, a fastest growing platform in the industry, having gone from $100 million in funds under management in mid-2012 to approx. $7 billion and is considered as one of the country’s leading platforms in terms of functionality and adviser satisfaction. The Group is planning to expand its distribution capability by creating two new roles and will provide additional dedicated support to licensees and advisers. The Board appointed Shane Muscat as the Head of Strategic Sales to lead new business initiatives with licensees, boutiques and new corporate partners. Its business is growing rapidly as it continues to deliver market?leading functionality and leverage expanding industry opportunities. The Group is committed to provide outstanding customer experience. This reflects an evolution in the way it approaches the market. Pinnacle Investment Management Group Limited ceased to be a substantial holder of the Group since 22 May 2018. In December 2017 Quarter, the Group received a market share of 13.9 per cent of net inflows.
 

Retail Flows and Advisers (Source: Company Reports)
 
The business is focussed on the delivery of the HUB24 platform and the growth of its wholly owned subsidiaries Paragem, a financial advice licensee, and Agility Applications which provides data, reporting and software services to Australian stockbroking and wealth management market. During the March Quarter, 96 new advertisers were introduced to the platform across all licensees while 17 distribution agreements were signed with new licensees. Its sales pipeline continues to strengthen on the back of client led development initiatives that will extend the Company’s market leadership. The stock price has spiked up 135.96 per cent in the last one year as on May 31, 2018 and currently trading at its 52-week high level. The stock fell by 3.57 per cent in last five days as at May 31, 2018. We believe that the investors are taking profits on the stock given many catalysts already priced in the current trading level. We put a “Sell” recommendation on the stock at the current market price of $ 13.38.
 

HUB Daily Chart (Source: Thomson Reuters)
 

IOOF Holdings Limited (ASX: IFL)

IFL Details
 
Decent organic support: IOOF has been helping Australians secure their financial future and is known for administering and managing Retail funds. It provides services like Financial Advice and Distribution services, Platform Management and Administration services for advisers and Trustee Services. The Company received a ruling from the Federal Court that it must disclose all the documents that are relevant to allegations of misconduct that were involved in an alleged frontrunning scandal. Thisintegration was under the observation of Royal Commission.After the integration with the Australia and New Zealand Banking Group’s wealth-management business, IOOF will be second-largest licensee -owner. IFL otherwise, reported for positive net flows of $1.0 billion in funds under management, administration and advice (FUMA) for the third quarter of the 2018 financial year. Total FUMA as at 31 March 2018 totalled $118.8 billion and funds under supervision were $33.8 billion. There was a 35% rise in Advice flows.
 

Funds Movement for nine months’ period ending 31 March 2018(Source: Company Reports)
 
IFL has grown substantially to become one of the largest groups in the financial services industry. Organic Growth remains a key part of its advice-led strategy. The stock moved down by 21.8 per cent in last six months and by 16.75 per cent in last three months. We maintain a “Hold” recommendation at the current market price of $8.75 by looking at the performance of the Group.
 

IFL Daily Chart (Source: Thomson Reuters)
 

Onevue Holdings Limited (ASX: OVH)

OVH Details
 
Strategic focus to enhance growth: It is a listed fintech company that partners to disrupt across the superannuation value chain and its business operates through three core divisions; Fund Services, Platform Services and Trustee Services. OVH recently announced that it would be sharpening its strategic focus to enhance growth in core businesses. Since then it has been executing its plan on opportunities that deepen or broaden the key areas of growth and divesting businesses deemed non-core. It has been delivering its organic growth pipelines, securing new clients and transitioning its contracted pipeline. It recently completed the acquisition of the KPMG Superannuation Administration business, deepening and broadening its superannuation capabilities and doubling the funds under administration and post this acquisition, the number of members administered increased to 135,000 which made the Group the 4^th largest provider in the market.
 

Fund Services FUA and key measures (Sources: Company Reports)
 
Its Platform Services Retail FUA was up 5.4% as at March 31, 2018 on pcp but was 12% below the previous quarter with volatility in equity markets. It was awarded with the 3^rd Best Platform overall in the Investment Trends Platform Benchmarking Report and received the winner of ‘Most New Developments’ Award for the second year running. It signed a 5 year extension of its agreement with the Madison Group’s white label WealthPortal, its largest Platform Services client. Gross quarterly inflows for March 2018 from new and existing clients of $326.2 million were up by 31 per cent ($165 million) on pcp, further building on the strong momentum and taking gross inflows to $1.7 billion for the last 12 months. The stock moved up by 20.9 per cent in last six months and by 14.08 per cent in last one month. The stock was down by 3 per cent as on June 01, 2018. We give a “Hold” recommendation at the current market price of $0.785.
 

OVH Daily Chart (Source: Thomson Reuters)

 
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