Stocks’ Details

Magellan Financial Group Limited (ASX: MFG)

Introduction of new unit class: As at April 2018, Magellan experienced slight dip in funds under management, and reported for net outflows of $268 million, which included net retail outflows of $64 million and net institutional outflows of $204 million; whereas in March, Magellan experienced net inflows of $648 million, which included net retail outflows of $20 million and net institutional inflows of $668 million. It announced its termination of its three-year partnership with Cricket Australia as the naming rights sponsor of the Australian Men’s Domestic Test Series. The three-year partnership that Magellan signed with Cricket Australia in August 2017, which commenced with the recent Ashes Series, was based on shared values and reputations of integrity, leadership, dedication and an unwavering customer-first culture. These recent events were so inconsistent with its values that it was left with no option but to terminate its ongoing partnership with Cricket Australia. The Group was delighted with the recent Magellan Ashes Series sponsorship and with a heavy heart it’s had to end its partnership in these circumstances. On the other hand, MFG completed the $1.57 billion initial public offering of the Magellan Global Trust, the largest closed end fund raising in Australian history. It introduced a new unit class in the Magellan High Conviction Fund with a lower base fee and higher performance fee. The performance of the High Conviction Fund has been exceptional, and the Group was seeing real interest by advisers in the new unit class. The stock was down by 6.4 per cent in the past six months and rose up by 5.6 per cent in the past one month. The stock was up by 1.39 per cent as on 10 May 2018. We give a “Buy” recommendation at the current market price of $24.66, given the long-term potential while some short-term headwinds might prevail.


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

Insurance Australia Group Limited (ASX: IAG)

Improved customer and employee experience: Insurance Australia Group edged up on May 10, 2018 with the release of its Investor Day Highlights. Its value proposition has remained broadly unchanged. It is also important to recognise that Asia was only a small ingredient in its targeted 10% compound Earnings Per Share (EPS) growth and the Group sees no reason to alter this target. But in the short-medium term, the drivers of its EPS will be firstly participating fully in the system growth of its core markets of Australia and New Zealand, which is typically in the order of 3-5% per annum. It also identified 11 core capabilities that were essential for today’s and tomorrow's success. Its strategy ensures that it is a successful, sustainable company, which can deliver on this purpose. Its Customer priority is to deliver world-leading customer experiences and to achieve this, it is pursuing a program of work that is transforming IAG from a product-led organisation to one that is orientated around the customer and informed by a deeper data-driven understanding of customers and their behaviours. By simplifying its existing core business and getting it as fit as it can possibly be, the Group is laying the necessary foundations to unpack what has traditionally been a tightly integrated business model into three quite separate but closely related platforms, and these platforms rely on the development of deep organisational capabilities. Without having a material impact on the overall earnings profile of the company, the Group was taking out volatility and replacing some insurance risk with a fee structure. It is on track to achieve a 10 per cent reduction in cost run rate by the end of FY19. The stock has been up by 27.6 per cent in last one year and was up by 7.8 per cent in last one month. We give a “Hold” recommendation at the current market price of $8.17.


Priorities Overview (Source: Company Reports)
 

Steadfast Group Limited (ASX: SDF)

Growth through acquisition: Steadfast Group announced strong half year results with 1HFY18 underlying NPAT up 8.4% and reaffirmed its FY18 guidance. Statutory NPAT of $33.8m was down 10.9% due to non-trading gains being lower than the prior corresponding period. The Steadfast Network delivered GWP of $2.6 billion, growth of 8%, driven by price rises together with new brokers and authorised representatives joining the Network. There were price increases of 4.4% across its Australian SME portfolio (excluding statutory classes) compared to the prior corresponding period. Steadfast Group has a strong balance sheet positioned to fund future growth. $89 million of unutilised corporate debt facilities were available at 31 December 2017. The total gearing ratio was 18.8%, well within the board-mandated maximum of 30%. The board has declared a fully franked interim FY18 dividend of 2.8 cents per share (cps), up from 2.6 cps (+8%) compared to the prior corresponding period. The target FY18 dividend pay-out ratio remains between 65% and 85% of underlying NPAT. The Board announced the appointment of Ms Gai McGrath as a director of Steadfast Group Limited, effective 1 June 2018. Ms McGrath has over 22 years of financial services experience including twelve years with Westpac Group. One of SDF’s directors, Robert Bernard Kelly, having a direct and indirect interest in the Company disposed of 37,000 ordinary shares and Marry Kelly (spouse) acquired 4,313 ordinary shares. Vinva Investment Management ceased to be substantial holder of the Group since 1 March 2018. The stock climbed up by 10.77 per cent in the past three months, followed by a rise of 4.35 per cent in the last five days. We recommend to “Hold” the stock at the current market price of $2.89 as Whitbread Group acquisition comes into play.
 

Updated Outlook (Source: Company Reports)
 

Pendal Group Limited (ASX: PDL)

Increase in Cash Operating Expenses: Pendal Group Limited, formerly BT Investment Management Limited, announced a record result for the six months to 31 March 2018 with Statutory NPAT increasing by 45 per cent, to $114.8 million, compared to the previous corresponding period. Cash net profit after tax (Cash NPAT) increased by 30 per cent, to $114.5 million, while Cash earnings per share (Cash EPS) increased 28% over the same period. The Board has declared an interim dividend of 22.0 cents per share for the half year, representing an increase of 16 per cent on the 19.0 cents per share paid for the same period last year, and marking the 6^th consecutive year of growth in the interim dividend (15 per cent franked). During the period, base management fee revenue increased by 18 per cent compared to pcp, to $247.9 million, driven by a 14 per cent increase in average FUM to $98.6 billion, and performance fees increased by 70 per cent to $47.6 million. However, institutional flows were impacted by pre-advised mandate loss in UK Opportunities Strategy (-$1.2billion). Cash operating expenses were also 20 per cent higher to $161.8 million driven by increased variable staff costs on higher fee revenue. Fixed costs were 15 per cent higher than pcp primarily resulting from increased headcount and higher regulatory costs. The stock has been declining in the last one year that is by 28 per cent and was down by 4.9 per cent in last five days. Just after the release of the interim results, the stock climbed up by 6.4 per cent on 10 May 2018. However, we believe that the stock is still “Expensive” at the current market price of $9.79.


Operating Expenses Trend (Source: Company Reports)
 

Genworth Mortgage Insurance Australia Limited (ASX: GMA)

Committed to actively manage its capital position: Genworth is a business that is focused on the strategic needs of its customers. Its Strategic Program of Work is divided into two stages. The first stage relates to initiatives earmarked for implementation over the next two years. The second stage involves longer term initiatives which it will implement from 2019 onwards, building on its core capabilities. GMA has made considerable progress in implementing initiatives related to the first stage of work. One such initiative has involved the establishment of an offshore insurance entity based in Bermuda. It entered into an agreement to provide excess of loss cover with a customer whose traditional LMI contract expired in April 2017. Its loss ratio in 2017 was 38.3%, up from 35.1% in 2016, again reflecting the impact of the 2017 Earnings Curve Review.


Performance of Gross Written Premium (Source: Company Reports)

Its objective is to deliver a compelling risk and capital management proposition for lenders and to deliver attractive and sustainable returns to shareholders over the long-term. Since listing on the Australian Securities Exchange, Genworth has distributed all of its after-tax profits to shareholders and returned more than $1 billion (or $2 per share), to shareholders via ordinary and special dividends and other capital management initiatives such as buy-backs and capital reductions. By 31 March 2018, its Prescribed Capital Amount had reduced to 1.84 times reflecting the completion in February 2018 of the $100 million on-market share buy-back commenced in the second half of 2017, and the non-renewal of a $50 million layer of reinsurance on 1 January 2018. Official cash rates are expected to remain on hold throughout most of the year with the possibility that RBA will start to raise rates in early 2019. The stock was down by 20.2 per cent in last six months, followed by a rise of 3.4 per cent in the last one month. The stock was up by 1.66 on 10 May 2018. We recommend to “Hold” the stock at the current market price of $2.45.
 

AUB Group Limited (ASX: AUB)

Encouraging Performance: AUB Group Limited’s strategic goal is to be the leading provider of risk management, advice and solutions for its clients. The Group will continue its disciplined focus, building on the strength of its Business Model, Operating Model and Group Strategy. The Group expects that the benefits of the Group’s focus on risk solutions for clients will continue to support organic growth as clients continue to engage across a broader range of risk solutions and services. Organic growth will continue to be supplemented by relevant acquisitions and start-up opportunities in Australia and New Zealand across Insurance Broking, Underwriting Agencies and Risk Services. The Group will continue to invest in its core capabilities, investments in strengthening the management team and building key competencies support that will help in evolution of the operating model with the objective of underpinning growth. The Group announced the appointment of Ms. Cath Rogers as a Non-Executive Director who took her responsibilities from 3^rd May 2018. The group had otherwise reported 15% rise in adjusted NPAT with 91.5% growth in reported NPAT for 1H18. The interim dividend also increased by 8%. The group intends to manage future costs with the roll-out of technology outsourcing initiatives in 2H18. In the last one year, the stock price rose up by 13.3 per cent and by 4.3 per cent in last one month. We give a “Hold” recommendation at the current market price of $14.15 by looking at the positive outlook for FY18 and growth prospectus.


Adjusted Profit Contribution to AUB Group (Source: Company Reports)

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