WAM Global Limited

WGB Details

Decent Growth in 1HFY20 Operating Profit: WAM Global Limited (ASX: WGB) is an investment management company, which is a part of Wilson Asset Management Group. In the month of June 2020, the investment portfolio of the company has provided a return of 4.9%. The company added that returns over the past 12 months have been highly concentrated, driven largely by large-cap US technology stocks such as Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT) and Amazon (NASDAQ: AMZN).

Portfolio (Source: Company Reports)

During 1H FY20, the company reported a rise of 185.7% in operating profit before tax to $38.8 million. This indicates decent investment portfolio performance and the growth in assets during the half-year. The company declared an inaugural fully franked interim dividend of 3.0 cents per share, reflecting a rise of 50% over FY19 final dividend. The company sees its holding in the US-listed CME Group as a hedge against the strong possibility of heightened volatility through the rest of the calendar year. The company is focused on the world’s most compelling undervalued growth opportunities.

Key Risks: The company anticipates heightened volatility in FY21 as the upward trajectory in equities is tested by the fear of the second wave of coronavirus, a return to lockdown as well as the cessation of fiscal stimulus. The business is also exposed to risks arising from US-China trade tensions and the shape of economic recovery.

Stock Recommendation: The company increased its net assets to $523.1 million after the payment of FY19 final dividend of 2.0 cents per share, from $465.5 million following its IPO in May 2018. The stock of WGB is trading at a price to book value multiple of 0.8x as compared to the industry median (Financials) of 1.0x on trailing twelve months (TTM) basis. Price to earnings multiple of the company stood at 4.06x, against the industry median (Financials) of 12.1x on TTM basis. Thus, it can be said that the stock of WGB is undervalued at the current trading levels. Hence, considering the decent growth in operating profit, growth in assets, and portfolio performance, we give a “Buy” recommendation on the stock at the current market price of $1.925 per share, up by 0.522% on 15^th July 2020.

WGB Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Navigator Global Investments Limited

NGI Details

Solid Portfolio Returns in June: Navigator Global Investments Limited (ASX: NGI) is engaged in the provisioning of investment management products and services to investors globally via its wholly owned subsidiary, Lighthouse Investment Partners, LLC. The market capitalisation of the company stood at ~$206.74 Mn as on 15^th July 2020. As on 30^th June 2020, total assets under management (AUM) of the company stood at US$11.77 billion as compared to total AUM of US$12.05 billion as on 31^st May 2020. The significant driver in the reduction to AUM over the 2020 financial year was the reduction to the MAS assets which transitioned to the company on 1 July 2018.  In the month of June 2020, net outflows stood at US$610 million. The company continues to work proactively with its clients to assist them in adjusting their portfolio strategies and positions, as well as, to meet their information and risk management needs during the volatile conditions caused by COVID-19.

AUM Movements (Source: Company Reports)

Outlook: In the interim results report, the company had provided EBITDA guidance to be in the range of US$34.0 million - US$36.0 million. However, due to unprecedented global market conditions and volatility from COVID-19, the company withdrew the guidance provided. In the short term, the company expects lower level of net outflows for the September’20 quarter as compared to the June’20 quarter, reflecting the expected commencement of funding of some new Platform services clients over the next quarter.

Key Risks: The business is exposed to credit risk, liquidity risk and market risk (including currency risk, interest rate risk and equity price risk). These risks can impact the net profit and total equity value of the company mainly through fluctuations in the value of its investments and other financial assets and liabilities and the amount of interest earned on the Group’s cash balances. Moreover, uncertainty regarding the impact of COVID-19 on investment performance remains a potential threat.

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

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: At the current market price dated 15^th July 2020, the annual dividend yield of the company stood at 20.43%, which seems to be inflated because of the price correction in the past few months. Currently, the stock is trading close to its 52-week low levels of $1.130, proffering a decent opportunity for accumulation. Current ratio of the company stood at 4.21x in 1H FY20 as compared to the industry median of 1.38x. This implies that the company is in a decent position to address its short-term obligations against the broader industry. Debt to equity multiple of the company stood at 0.08x in 1H FY20 versus the industry median of 0.56x. We have valued the stock using the P/E multiple based illustrative relative valuation method. For the purpose, we have taken peers such as Centuria Capital Group (ASX: CNI), Australian Finance Group Ltd (ASX: AFG), etc., and arrived at a target price of low double-digit upside (in percentage terms). Therefore, considering the decent liquidity position, deleveraged balance sheet, outlook and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.280 per share, up by 0.392% on 15^th July 2020.

NGI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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