VGI Partners Limited

VGI Partners Limited (ASX: VGI) operates as an investment management company with worldwide customers. It provides fund management services to VGI Partners Master Fund, VGI Partners Global Investments Limited (VG1), VGI Partners Asian Investments Limited (VG8) and VGI Partners Offshore Fund. VGI was listed in ASX on June 21, 2019.

December 2021 Funds Under Management Update:

• VGI posted a decline in Funds Under Management (FUM) in December 2021 quarter to reach $2.5 billion as compared to $2.8 billion in the September 2021 quarter.
• A drop in FUM was attributed to redemptions (to the tune of $0.2 billion) and underperformance of its Global Strategy Fund.
• VGI didn’t realize material performance fees during the 2HFY21 period.

Hindsight on H1FY21 Performance:

• An Uptick in FUM: FUM showcased a 10% growth in H1FY21 to reach $3.2 billion. Increased marketing initiatives, ramping-up of client-facing platforms, and decent performance in Global and Asian Strategy funds are some of the growth drivers.
• Strong Performance Fees: It had realized performance fees of $50.4 million aided by resilient portfolio performance. It had reaped management fees of $22.2 million on account of an uptick in margin and average FUM.
• Normalized NPAT reached $43.0 million, as against $3.6 million. This was on account of an increase in fair value gains, fully offsetting the spurt in amortization expenses.
• The board has declared an interim dividend of 31 cents per share.

Revenue and Net Losses (Source: Analysis by Kalkine Group)

Key Risks: The fund performance of VGI is exposed to volatility in markets. Investment flows are largely influenced by a spectrum of events such as geopolitical risks, quantitative tightening, movements in Treasury yield, and so on.

Outlook: VGI has partnered with Hazeltree to implement cash and treasury management solutions. The company continue to invest in digital infrastructure with a recent migration to the Azure Cloud platform to guard off against cyberattacks. The company is in talks for a potential merger with Regal Funds Management. It had confirmed the developments in a news announcement dated January 10, 2022.

Stock Recommendation: Over the last three months, the stock has been corrected by ~8.38%. The stock is trading below the average of the 52-week low price of $4.060 and the 52-week high price of $8.540. On a TTM basis, the stock of VGI is trading at an EV/Sales multiple of 3.0x, lower than the industry median of 4.1x (Investment Banking & Investment Services), signalling undervaluation. Considering the significant rise in net profit in H1FY21, merger talks with Regal Funds Management, current trading levels, TTM valuation, and key associated business risks, we recommend ‘Speculative Buy’ rating on the stock at the closing market price of $4.590, down ~1.71% as of 19 January 2022.  

VGI Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

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Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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