Expansion Into Singapore And Partnerships Will Open New Opportunities

Key Takeaways

• Transition to recurring revenue enhances revenue stability and net margins, supporting future earnings growth and increased profitability.
  
• Strategic partnerships and market expansion offer new capital sources and revenue growth, boosting asset management and long-term prospects.
  
• The interest rate environment and strategic shifts pose risks to revenue and earnings, with volatile conditions affecting asset flow and income growth potential.

Catalysts

Provides various financial services in Australia.

• The transition from a business reliant on performance fees to one with substantial recurring revenue is nearing completion, setting a strong foundation for future earnings growth. This transition should positively impact revenue stability and expand net margins as recurring revenue typically has higher margins than transactional income.
  
• MA Money is expected to reach run rate breakeven by October 2024, beginning to contribute positively to group earnings, which should support overall earnings growth. The transition should lead to an increase in net profit and improving earnings per share as initial investment costs decline.
  
• Strategic partnerships, such as the one with Flexicommercial and the planned real estate credit vehicle with Warburg Pincus, provide access to high-quality asset-backed loans and significant capital commitments, likely boosting asset management revenue and enhancing operating leverage.
  
• Expansion into new markets, particularly through the Singapore license application and building high-net-worth and institutional relationships there, allows MA Financial to tap into new sources of capital and diversification. This could significantly impact asset management revenue and long-term growth prospects.
  
• As MA Money's loan book grows with improved net interest margins, achieving targets of $4 billion by FY '26, the profitability of this division is set to boost revenue and contribute to a higher net profit margin. This aligns with expected improvements in net interest margins and the division's path to profitability.

MA Financial Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MA Financial Group's revenue will decrease by 35.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.5% today to 33.3% in 3 years time.
• Analysts expect earnings to reach A$86.2 million (and earnings per share of A$0.41) by about February 2028, up from A$24.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.8x on those 2028 earnings, down from 47.5x today. This future PE is lower than the current PE for the AU Capital Markets industry at 21.4x.
• Analysts expect the number of shares outstanding to grow by 0.67% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.82%, as per the Simply Wall St company report.

MA Financial Group Future Earnings Per Share Growth

Risks

• The interest rate environment is impacting real estate-backed asset classes, which poses a risk to offsetting the strong organic growth, potentially affecting underlying revenue and earnings.
  
• The group's transition from reliance on performance fees and transactional revenue to establishing substantial recurring revenue introduces a period of uncertainty and potential earnings volatility, which may impact net margins.
  
• The strategic investment in MA Money and other initiatives provides an earnings headwind, affecting underlying EBITDA and earnings per share, which could present risks to achieving projected earnings targets.
  
• The success of new institutional initiatives, like the real estate credit vehicle and partnership with Flexicommercial, rely on the deployment and management of funds, introducing execution risk that could impact future revenue streams.
  
• The volatile market conditions and economic uncertainty could affect asset management flow consistency and recurring revenue margins, thereby constraining income growth potential.

Valuation

• The analysts have a consensus price target of A$7.169 for MA Financial Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$8.1, and the most bearish reporting a price target of just A$6.67.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$258.7 million, earnings will come to A$86.2 million, and it would be trading on a PE ratio of 18.8x, assuming you use a discount rate of 10.8%.
  
• Given the current share price of A$7.23, the analyst price target of A$7.17 is 0.8% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.