Magellan Financial Group Limited

MFG Details

Latest Updates: Magellan Financial Group Limited (ASX: MFG) engages in the fund management business to deliver investment avenues to retail, wealthy, and institutional investors. It operates Fund Investments, Magellan Capital Partners, and Funds Management segments. On 25 January 2022, Magellan Financial Group Limited increased its voting power in Nobleoak Life Limited from 5.03% to 6.19%.

Change of Directors’ Interests:

• On 19 January 2022, Director, Hamish McLennan, acquired 500 units in Magellan High Conviction Trust (ASX: MHHT) at $1.8059 per unit. His shareholding increased to ~38,452 units in the Trust.
• On 1 January and 19 January 2022, the Director, Hamish Douglass, acquired ~27,244.83 units in Magellan High Conviction Fund at $2.28 per unit, ~208,742 units in Magellan High Conviction Trust (ASX: MHHT) at $1.80 per unit, and ~34,769 units in Magellan Global Fund (Open Class) (ASX: MGOC) at $2.82 per unit. These units were issued under the Distribution Reinvestment Plan (DRP).
• Director, John Eales, purchased ~3,004 Units in Magellan High Conviction Trust (ASX: MHHT) at $1.8059 per unit.

AGM 2021 Highlights:

• MFG obtained its first two mandates for the Global Sustainable strategy in Q1FY22 (ended 30 September 2021) and secured an additional client in October 2021.
• The average FUM grew from $45.7 billion in FY17 to $103.7 billion in FY21 at a 4-year CAGR of 22.8%.

Business Results as of 31 December 2021:

• MFG is authorized to performance fees of ~$11 million for the period ended 31 December 2021 (1HFY22).
• The company held an average FUM (funds under management) of ~$112.7 billion during 1HFY22 versus ~$100.1 billion during 1HFY21 (30 December 2020).
• Excluding the termination of the St. James’s Place mandate, MFG reported $459 million of net institutional outflows for Q2FY22 (December 2021 quarter) which constituted Australian Equities (~$12 million inflows), Infrastructure Equities (~$215 million outflows), and Global Equities (~$256 million outflows).

Total FUM held under Retail & Institutional Investors; (Analysis by Kalkine Group)

Key Risks: The company is exposed to market volatility, regulatory concerns, financial risks such as credit risk & interest rate sensitivity.

Outlook:

• 1HFY22 results will be declared on 17 February 2022 and a results briefing will take place at 11.30 AM.
• 1HFY22 Interim Dividend – MFG has set 23 February 2022 as the record date, 22 February 2022 as the ex-dividend date, 17 March 2022 as the payment date, and 24 February 2022 as the DRP election date.
• MFG expects considerable avenues to increase its listed infrastructure and Australian equities franchises. It plans to stay focussed on growing its Funds Management business, the key driver of operations and expects growth opportunities ahead.
• The termination of SJP’s (St. James’s Place) mandate accounts for ~12% of the current annual revenues of the Group and is expected to leave a ~6% revenue impact on the FY22 results. However, it is not expected to have a material impact on the 1HFY22 results.

Valuation Methodology: Price to Book Value 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 gave a negative return of ~48.19% in the past three months and a negative return of ~63.65% in the past six months. The stock is currently trading towards its 52-weeks’ average price level band of $18.010 - $56.180. The stock has been valued using the Price to Book Value-multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ mean P/BV multiple, considering the expected revenue impact due to the stoppage of the SJP contract and the decline in total FUM as of 31 December 2021. For this purpose of valuation, a few peers like Perpetual Ltd (ASX: PPT), Platinum Asset Management Ltd (ASX: PTM), Pinnacle Investment Management Group Ltd (ASX: PNI), and others have been considered. Considering the low trading levels, new mandates for the Global Sustainable strategy, growing average FUM, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $18.230, as of 4 February 2022, 3:15 PM (GMT+10), Sydney, Eastern Australia.

MFG Daily Technical Chart, Data Source: REFINITIV  

VGI Partners Limited

VGI Details

Regal and VGI Merger Update: VGI Partners Limited (ASX: VGI) offers investment management services to VGI Partners Global Investments Limited (VG1), VGI Partners Master Fund, VGI Partners Offshore Fund, VGI Partners Asian Investments Limited (VG8. On 31 January 2022, VGI notified signing an exclusive and non-binding term sheet for the merger with Regal Funds Management Pty Limited (“Regal”), the investment manager of RF1 (Regal Investment Fund (ASX: RF1)).

The Deal Highlights:

• Under the proposed deal, VGI would acquire ~100% of Regal in consideration for the issue of new fully paid ordinary shares in the company (VGI) to the existing shareholders of Regal.
• The combined entity would comprise of ~60% shareholders of RF1 and ~40% shareholders of VGI post adjustments of cash, liquid assets, and other investments.
• The companies must fulfil all the necessary diligence, discuss on the conditions of a binding agreement, and seek Board approvals before signing a definitive agreement.
• There’s a possibility that VGI might have to rename and change its ticker upon the completion of the proposed deal. The proposed merger would be subject to the approval of VGI shareholders.

Merger Benefits:

• The proposed merger is expected to create over ~$6 billion hedge fund manager. The VGI shareholders are expected to gain exposure to a growing platform of private market, hedge fund, and real asset investment strategies for high net worth (HNIs), retail, and institutional investors in Australia and overseas.
• Regal has received a six (6)-week exclusivity period from VGI for the customary binding terms (including no talk, no due diligence restrictions, etc.).
• In another key update, VGI declared the resignation of the CEO, Jonathan Howie. He will, however, provide support with the activities related to the proposed merger.

Funds Under Management (FUM) as of 31 December 2021:

• VGI reported $2.5 billion FUM as of 31 December 2021 compared to $2.8 billion as of 30 September 2021 owing to redemptions of ~$0.2 billion and drop in the underlying fund performance.
• Though the Asian strategy recorded positive performance, the Global strategy performance witnessed a decline during Q2FY22.

Quarterly Growth of FUM; (Analysis by Kalkine Group)

Key Risks: The fund operations and growth are susceptible to market fluctuations. VGI faces the risk of COVID-19 uncertainty, adverse macro-economic situations, interest rate, and treasury yield changes, etc.

Outlook:

• VGI does not anticipate releasing any material performance fees for 2HFY21 (i.e. from 1 July - 31 December 2021) as the performance fees revenue can vary considerably from one period to another.
• The company has signed a binding term sheet with Regal to form a larger hedge fund entity. VGI will progress on fulfilling the pre-requisites for singing a definitive agreement and henceforth seek the shareholders’ approval for the proposed merger.

Stock Recommendation: The stock of VGI gave a negative return of ~5.37% in the past three months and a negative return of ~33.33% in the past six months. The stock is currently trading below the 52-weeks’ average price level band of $4.060 - $8.540. On a TTM basis, the stock of VGI is trading at an EV/Sales value multiple of 2.9x lower than the industry (Investment Banking & Investment Services) median of 3.8x, thus seems undervalued. Considering the current trading levels, low debt-to-equity levels, a significant rise in profit margins, and ROE in 1HFY21, valuation on a TTM basis, and associated key business risks, we give ‘Speculative Buy’ rating on the stock at the closing market price of $4.400, down by 0.227%, as of 4 February 2022.

VGI Daily Technical Chart, Data Source: REFINITIV  

Wisr Limited

WZR Details

Recorded Positive Operating Cashflows in Q2FY22: Wisr Limited (ASX: WZR) is a financial technology firm offering consumer finance products via a financial wellness platform and a Wisr App to support consumers pay down debt. Its loan offerings consist of personal loans, debt consolidation loans, recreational loans, medical loans, etc.

• The company posted record revenue of $14.1 million, up by ~140% YoY in Q2FY22 (December 2021 quarter).
• WZR continued its track record of new loan growth for the last ~22 successive quarters and recorded a rise of ~62% YoY in the loan originations to ~$136 million during Q2FY22. The total loan originations stood at $879 million as of 31 December 2021.
• Executive Leadership Team was expanded with the addition of Oliver Bladek as the Chief Operating Officer at the December-end and Cathryn Lyall as a new Non-Executive Director from 1 January 2022.
• As the revenue and scale expanded, WZR witnessed its first positive Cash EBITDA of ~$0.4 million in Q2FY22 as compared to $(5.5) million in Q1FY22.
• WZR held ~$75.83 million cash and cash equivalents as of 31 December 2021. 022.

Key Metrics Comparison Q2FY22 Vs. Q1FY22, (Analysis by Kalkine Group)

Key Risks: The company faces the risk of impairment of financial assets, higher quantum of bad debts, and slower collection of receivables/ cash cycle for recovery of arrears outstanding. 

Outlook:

• The company is focused on achieving a loan book worth $1 billion plus in the medium term.
• In FY22, WZR plans to explore options for additional investment in the European (EU) consumer finance market via its recent strategic investment in Arbor.
• WZR plans to deliver ~1 million customer profiles in its proprietary platform and expects to deliver additional market leading economics in the sector and operational leverage in FY22.

Valuation Methodology: Price to Book Value 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 WZR gave a negative return of ~38.46% in the past three months and a negative return of ~47.54% in the past six months. The stock is currently trading at par to its 52-weeks’ low level of $0.160. The stock has been valued using the Price to Book Value multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers’ average P/BV multiple, considering the rise across key metrics in Q2FY22, positive cash EBITDA, and decent outlook. For this purpose of valuation, a few peers like Zip Co Ltd (ASX: ZIP), Credit Corp Group Ltd (ASX: CCP), Money3 Corp Ltd (ASX: MNY), and others have been considered. Considering the low trading levels, turnaround in the net operating cashflows & cash EBITDA, recorded new loan, and revenue growth, an indicative upside in valuation, progressive outlook, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.160, down by ~3.031%, as of 4 February 2022.

WZR Daily Technical Chart, Data Source: REFINITIV  

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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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