Stocks’ Details
 

WAM Capital Limited

Solid Investment Portfolio Supported Growth in 1H FY20: WAM Capital Limited (ASX: WAM) is a listed investment management company, which is managed by Wilson Asset Management Group. The market capitalisation of the company stood at $1.4 Bn as on 8^th April 2020. In response to threat arising from COVID-19, the company increased its cash weighting to 23.2% in February 2020. Moreover, it has decreased its exposure to those companies which offers less liquidity.

During 1H FY20, it reported a rise of 168.4% in operating profit before tax to $95.6 million, which was backed by solid investment portfolio performance during half-year.


WAM Portfolio (Source: Company Reports)

Focus for Growth: WAM is focused on identifying undervalued growth companies which helps in generating solid portfolio performance during the time span.

Stock Recommendation: During February 2020, the cash holdings of the company stood at 33.8% with net tangible assets per share of 182.64 cents. Since its inception, the company has paid 238.50 cents per share in the form of dividend and investment portfolio has provided returns of 16.3%. The Board of WAM declared a fully franked interim dividend of 7.75 cents per share for 1H FY20.  Return on equity of the company stood at 5.2%, reflecting YoY growth of 12.2%. On the valuation front, the stock is trading at a P/E multiple (TTM) of 7.7x, which is lower than the industry average of 11.0x, exhibiting undervalued position at the current levels. Also, the P/BV ratio which is a widely followed valuation metric in financing space shows that the company is undervalued as compared to the investment banking & investment services industry. Hence, considering the decent growth in 1H FY20, increased returns to shareholders, and valuation parameters (on TTM basis), we give a “Buy” recommendation on the stock at the current market price of $1.940 per share, down by 0.257% on 8th April 2020.

WAM Global Limited

Strong Operational Performance: WAM Global Limited (ASX: WGB) is an investment management company with expertise in global and Australian equity market. The market capitalisation of the company stood at $377.09 Mn as on 8^th April 2020. During February 2020, the company included US credit bureau TansUnion to its investment portfolio which helped WGB in generating strong operational performance. Moreover, the company witnessed 10% organic growth in Q4 FY20.

In response to deal with uncertainties from the COVID-19, the company has adopted a more defensive portfolio, decreased its cyclical holdings and increased its exposure to companies which possesses resilient earnings. At the end of February 2020, the company had a high liquidity position and increased its cash weighting to 11.2%.


Cash Currency Exposure Feb 2020 (Source: Company Reports)

Future Aspects: In order to achieve future growth, the company is focused on the ongoing economic and financial impact caused by Coronavirus (COVID-19).

Stock Recommendation: During 1H FY20, the company has declared interim dividend amounting to 3.0 cents per share, fully franked. This reflects a rise of 50% as compared to the dividend of FY19. This dividend growth has been attained via the performance of investment portfolio since inception as well as the available profit reserves. The company reported a rise of 185.7% during 1H FY20 in its operating profit before tax, which indicated decent investment portfolio performance and asset growth. From the valuation standpoint, it reported a TTM P/BV multiple of 0.7x as compared to the investment banking & investment services industry median of 2.2x showing that the stock is undervalued. From the valuation standpoint, it reported a TTM P/BV multiple of 0.7x as compared to the investment banking & investment services industry average of 2.2x showing that the stock is undervalued. Therefore, in light of the decent performance of the portfolio, response to COVID-19 and high liquidity position, we give a “Buy” recommendation on the stock at the current market price of $1.785 per share, up by 0.281% on 8th April 2020.

Navigator Global Investments Limited

Investment Performance as at 31^st March 2020: Navigator Global Investments Limited (ASX: NGI) a diversified financial company, which is in the provisioning of investment management products and services to investors globally via wholly-owned subsidiary Lighthouse Investment Partners, LLC. The company recently announced that assets under management for total business are expected to be adversely impacted as at 31 March 2020 because of investment performance. The company also anticipates increased redemptions in the short-term as some of its clients have indicated a need to exit some of their hedge fund positions to generate liquidity in their broader portfolios.


Investment Performance (Source: Company Reports)

Suspension of FY20 Guidance: Unprecedented global market conditions and volatility evolved from the impact of COVID-19 pandemic has adversely impacted investment performance. Considering this, the company has suspended its guidance for FY20.

Stock Recommendation: Gross margin and EBITDA margin of the company stood at 92.4% and 36.4% in 1H FY20, reflecting YoY growth of 0.2% and 1.4%, respectively. Current ratio of the company stood at 4.21x during 1H FY20 against 1.40x of the industry median. This implies that NGI is in a decent position to address its short-term obligations as compared to the peer group. Debt to equity of NGI stood at 0.08x versus industry median of 0.67x. NGI has EV/Sales multiple of 2.3x as compared to the industry average (Financials) of 7.6x on TTM basis. The stock of navigator is trading at a price to book multiple of 1.2x against the industry average (Investment Banking & Investment Services) of 2.2x on TTM basis. Hence, it can be said that the stock is undervalued at current trading levels.

Therefore, considering the decent liquidity position, deleveraged balance sheet and improvement in key margins, we maintain a “Hold” rating on the stock at the current market price of $1.700 per share, down by 26.407% on 8^th April 2020. It looks like the decline in stock price was due to the expected negative impact in assets under management. 

Pinnacle Investment Management Group Limited

Acquisition of 25% interest in Coolabah Capital Pty Limited: Pinnacle Investment Management Group Limited (ASX: PNI) is a multi-affiliate investment management firm with the market capitalisation of $515.32 Mn as on 8^th April 2020. For 1H FY20, the company reported net profit after tax (NPAT) from continuing operations amounting to $13.8 million, with a rise of 36.6% from $10.1 million of 1H FY19. During the period, the company completed the acquisition of 25% interest in Coolabah Capital Pty Limited, which was financed using CBA facility.

The company pleased the shareholders by paying a fully franked interim dividend of 6.9 cents per share on 20^th March 2020, which reflects a payout ratio of 90% of diluted EPS.


Financial Overview (Source: Company Reports)

Future Growth Participants: The company’s future growth revolves around investment in the distribution platform, which helps in growing ahead of its affiliates. The investment in new affiliates also supports future growth.

Stock Recommendation: Current ratio of the company stood at 6.33x in 1H FY20 against the industry median of 1.40x, reflecting that PNI is well-positioned to address its short-term obligations as compared to the peer group. Return on equity of the company stood at 7.8% as compared to the industry median of 4.2%, reflecting increased returns to shareholders. Thus, in light of increased returns provided to shareholders, decent liquidity position, we give a “Buy” recommendation on the stock at the current market price of $2.820 per share, up by 1.439% on 8th April 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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