Magellan Financial Group Limited

MFG Details

Termination of SJP Mandate: Magellan Financial Group Limited (ASX: MFG) is involved in funds management with the objective of offering international investment funds to high net worth and retail investors. Recently, Magellan Asset Management Limited (fully owned subsidiary of MFG) has been notified that St James’s Place (SJP) has terminated its mandate with Magellan Asset Management Limited.

• SJP’s mandate, which was a separate account reflects approximately 12% of the current annual revenues of the group.
• This is likely to impact revenue for FY22 by ~6% and may leave an immaterial impact on 1HFY22 results.

Resignation of CEO: As announced on 6 Dec 2021, Dr Brett Cairns has stepped down from his role of Chief Executive Officer for personal reasons and will be leaving the Company. In addition, the company has appointed Ms Kirsten Morton as Interim Chief Executive Officer (CEO), who has been the Chief Financial Officer of Magellan for over eight years.

Funds Under Management (FUM): As on 30 November 2021, the company reported total funds under management of $116,413 million as compared to $114,800 million as on 29 October 2021.

FY21 Financial Summary:

• During the year ended 30 June 2021, MFG posted a growth of 9% in average funds under management to $103.7 billion.
• During FY21, Profit before tax and before performance fees amounted to $526.6 million, reflecting a growth of 10% over pcp. This was aided by an increase in average funds under management and cost efficiencies.

Average FUM (Source: Analysis by Kalkine Group)

Key Risks:

• Market Movement Risk: Any adverse movement in the securities market may impact its operational and financial performance.
• Regulatory Risk: The company’s business is exposed to a more complex regulatory environment; any failure may lead the business to fines, penalties etc.

Outlook:

• Looking forward, MFG would continue to increase the profitability over the time via increasing the value and performance of funds under management.
• For FY22, the company anticipates Funds Management business expenses in the ambit of $125-$130 million.
• MFG has scheduled to release 1HFY22 results on 17 February 2022.

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of MFG is trading below its 52-week low-high average of $19.190 - $56.180, respectively. The stock has been corrected by ~35.88% and ~39.89% in the past one and three months, respectively. The stock has been valued using the P/BV multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at some discount to its peers’ average P/BV multiple, considering the market volatility and the risk associated with the termination of SJP mandate, etc. For the purpose of valuation, peers such as Macquarie Group Ltd (ASX: MQG), Perpetual Ltd (ASX: PPT), and Platinum Asset Management Ltd (ASX: PTM), and others have been considered. Considering the expected upside in valuation, rising FUM, growing bottom line, decent outlook, current trading levels and risks arising from the recent termination of SJP mandate, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $21.190, as on 30 December 2021, 11:55 AM (GMT+10), Sydney, Eastern Australia.

Investors with high-risk appetite should evaluate this stock in view of the technical support and resistance levels as well as taking into consideration risks associated with volatility in securities market and impacts on revenue expected from the recent termination of SJP mandate.

MFG Daily Technical Chart, Data Source: REFINITIV  

VGI Partners Limited

VGI Details

Update on Investment Portfolio: VGI Partners Limited (ASX: VGI) is a global equity manager, which manages capital for high-net-worth individuals, family offices and two Listed Investment Companies.  As per the recent VG1 & VG8 Global & Asian Listed Investment Company Updates, the company mentioned that VG8’s investment portfolio posted a return of 15% for FY21 after fees and before tax. At the same time, VG1’s investment portfolio settled with a strong return of 25.6%.

FUM Update: As on 30^th September 2021, VGI’s funds under management (FUM) stood at $2.8 billion against $3.2 billion as on 30^th June 2021; the fall in FUM was mainly due to the performance of funds.

1HFY21 Financial and Operational Highlights:

• The company witnessed increased pro-active client engagement, improvements in content creation and CRM upgrade during 1HFY21.
• VGI posted growth in statutory NPAT to $43.0 million against $3.6 million in 1HFY20, which was backed by fair value gains.

Statutory NPAT (Source: Analysis by kalkine Group)

Key Risks:

• Foreign Exchange Risk: VGI’s financial health could be impacted by unfavourable movement in foreign currency.
• Market Risk: The company’s funds’ performance could be impacted by the volatility in the equity market

Outlook:

• The company would continue to invest strongly in its IT systems and infrastructure by partnering with best-in-class service providers going forward,
• VGI’s investment and trading capability were also cemented by the implementation of Enfusion. The said software may support full end-to-end capture of the trade cycle together with future scalability.

Stock Recommendation: The stock of VGI is trading below its 52-week low-high average of $4.060 - $8.650, respectively. The stock has been corrected by ~20.55% and ~31.54% in the past three and six months, respectively. The stock of VGI is trading at a P/BV multiple of 2.0x against the industry average (Financials) of 2.8x on a TTM basis. Thus, it can be said that the stock is undervalued at the current trading levels. Considering the valuation on a TTM basis, decent return from portfolios, increasing client engagement, decent liquidity position, increasing NPAT, optimistic outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $4.540, as on 30 December 2021, 10:45 AM (GMT+10), Sydney, Eastern Australia.

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 on 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 subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and 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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