Across this disparate group of businesses, we continue focus on those alternative asset managers growing FUM (RPL, QAL) and the materials businesses growing earnings (in what remains a shrinking investable universe). The more cyclically exposed construction linked stocks of MGH, JHX and QAL saw a positive price response, despite EPS declines as investors look through any short-term ‘air-pocket’ of demand to a potentially improved housing market (both domestically and in the US) on the back of lower interest rates. Within the context of recent trading performance, implied multiples, and estimated TSR, we call out RPL, QAL and MGH our key picks post results.
Regal Partners (RPL)
Normalised 1H24 NPAT of $59.0m was 23% above our forecasts and 15% above consensus. The key area of outperformance was other income at $28.4m (vs our forecasts of $15.5m), a function of co-investment mark-to-market gains and cash received as dividends. The key to earnings growth remains FUM growth, with 1H24 seeing net inflows of +$0.7bn and a further +$1.2bn of growth via investment performance - we factor in something similar for 2H24. Average management fees (both $ and %) should increase in 2HCY24, as RPL receives full contributions from the higher fee businesses of Merricks and Argyle.
Investment view:
- Strong investment performance, fund inflows and acquisitions have seen the business grow FUM 133% pa since Jun-22, when Regal Funds Management merged with VGI Partners.
- RPL can continue to grow FUM as performance persists and the alternative managers reach scale.
Qualitas (QAL)
FY25 guidance for NPBT of $49-$55m reflects growth of c.26% to 41% (vs pcp), with base management fees and balance sheet co-investments to deliver the bulk of the growth. Management commented that its current cash balance should be sufficient to see it reach the aspirational target of $18bn FUM by FY28. Deployments should continue to grow, albeit at a slower pace, with the proportion of net to gross loans likely to remain similar.
Investment view:
- QAL is well-positioned to increase market share in debt funding for affordable multi-unit metro developments.
- Management’s FY28 FUM target of $18bn, the reduced reliance on performance fees and a build-to-rent portfolio which remains a future growth driver.
MAAS Group (MGH)
Underlying EBITDA (equity share) was up 27% to $207.3m, at the top end of guidance ($190m-$210m) and in line with consensus. Underlying result included $30m revaluations gains and a $10m of gain on sale. Construction Materials, the highest multiple segment in the MGH business, grew 58% (vs pcp), with existing businesses (acquired pre Jul-22) driving approximately half of the increase. The quarry business continues to grow volumes, along with ASP increases and COB reductions. Residential real estate remains a challenge, with allotment sales volumes to be muted in FY25.
Investment view:
- Management expecting continued revenue and profit growth in FY25.
- The business continues to demonstrate a transition away from real estate towards a construction materials, namely quarry, lead industrial business – construction materials grew FY25 EBITDA 54% (existing businesses grew 44%).
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