Mainstream Group Holdings Limited

 

MAI Details
 
COVID-19 Update: Mainstream Group Holdings Limited (ASX: MAI) is engaged in providing worldwide outsourced fund administration and custody services to a wide-range of wealth management sector participants. The company is continuously reviewing the impact of COVID-19 on its business and has reinstated its FY20 guidance. The company now expects revenue for FY20 to be ~$54 million, and EBITDA to be ~$9 million (post AASB 16 Leases). The robust strength of MAI’s more than 85% of recurring revenue, along with cost control initiatives, aided the company to gain confidence in the near-term outlook. The company is closely monitoring the situation and is taking necessary steps for the safety and well-being of clients and employees. The company is well-positioned to take advantage from the continued trend towards fund administration and has a strong sales pipeline from deep client relationships and rising brand awareness. The growth prospects of the company are promising with increased focus on higher investing, with benefits of these investments expected in FY21.
 
MAI Renews CEO Contract: Recently, MAI stated that it has renewed the employment contract of Martin Smith, the company’s Chief Executive Officer, effective from May 1, 2020, for a period of 3 years.
 
March 2020 Quarter Update: The company has recently released its March 2020 quarter update, wherein it reported record Fund under Administration (FUA) of $187.1 billion, up 15% year over year. The company continues to benefit from robust growth in its key markets and clients, as reflected in the sizeable increase in funds under administration over the period. No. of clients for the period stood at 348, a slight decrease of 2% year over year. While global markets fell by over 20% during the quarter, the exposure of the company to market movements was mitigated by its diverse client base and robust inflows. Net funds increased by 31 on a sequential basis, with continued wins in US private equity and significant growth in the Singapore and Hong Kong businesses despite COVID-19.
 

Key Highlights (Source: Company Reports)
 
1HFY20 Key Highlights for the Period Ended 31 December 2019: During 1HFY20, revenue of the company reached $26.7 million, reflecting an increase of 7% on 1H FY19, driven by ongoing demand for services in the core markets of Australia, Hong Kong, Singapore and the US. In the same time span, EBITDA stood at $3.2 million, down 12% year over year, whereas funds under administration reached $187 billion, achieving a growth of 27% on the prior year. The group administers 1,011 funds for 348 clients, which increased 10% year over year. The company also reported a robust balance sheet and strong cash generation in the underlying business.
 

1H20 Financial and Operational Highlights (Source: Company Reports)
 
Segmental Performance: During 1H20, Asia-Pacific region contributed 72% of the group’s revenue, which stood at $19.2 million. In the same time span, the Americas contributed 19% of the revenue, which stood at $5.0 million, whereas contribution from Europe was 9%, which came in at ~$2.4 million.
 
Valuation Methodology:P/E Multiple Based Illustrative Relative Valuation 

P/E Multiple Based Illustrative Relative Valuation Approach (Source: Refinitiv, Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: As per ASX, the stock of MAI gave a return of 8.64% in the past one month and is trading towards its 52-week low level of $0.245, proffering a decent opportunity for accumulation. The company has a market capitalisation of $58.01 million, with an annual dividend yield of 2.84%. Considering the decent returns in last one month, trading levels, resilient business despite the uncertain environment and positive long-term outlook, we have valued the stock using a Price to Earnings multiple based illustrative relative valuation method and have arrived at an indicative target price with an upside of low double-digit (in percentage terms). Hence, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.470, up by 6.818% on 20 May 2020.
 
 
MAI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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