As interest rates normalise and economic growth moderates, earnings quality, market positioning and balance sheet strength will play an important role in distinguishing companies from their peers. We think stocks will continue to diverge in performance at the market and sector level, and investors need to take a more active approach than usual to manage portfolios. We add MA Financial Group to our list this month.
October best ideas
MA Financial (MAF) - ADD
Small cap | Financial Services
MA Financial is a diversified financial services firm specialising in managing alternative assets, lending, corporate advisory and equities with a strong focus on growth. Despite some recent share price strength MAF is still on 15.0x 12mf PE. Importantly, we believe that earnings number is a cyclically depressed number given the weakness in transactional business. The key drivers here being: an expected higher revenue margin and the benefit of recent flows in Asset Management, a halving of investment spend, MA Money becoming earnings break-even, and an uplift in corporate advisory. Management noted that MA Money remains on track to achieve break-even profitability by October, and the company is about hitting its A$4bn loan book target by FY26. While all this has been going on, the company has built up an impressive and more recurring funds management and lending businesses.
Outlook commentary:
The bottom appears in for earnings: It seems clear that the 1H24 result will mark the low point for MAF earnings, with management noting it expects solid 2H24 underlying EPS growth vs 1H24.
MA Money tracking well: Management noted that MA Money remains on track to achieve break-even profitability by October, and the company is “very confident” about hitting its A$4bn loan book target by FY26.
Asset Management franchise continues to see good flows: Highlighting MA’s success in building out its domestic distribution channels, domestic flows were up 52% on the pcp, and represented 65% of total AM gross flows.
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