Expansion Into US Private Credit Market Will Capitalize On Strong Demand

Key Takeaways

• Strategic partnerships and fund listings are likely to boost revenue growth through increased assets under management and diversified capital sources.
  
• Expansion into the U.S. private credit market and advanced loan processing are expected to enhance revenue and maintain market dominance.
  
• Competitive loan markets and variable corporate advisory conditions, combined with uncertain fees and early-stage U.S. investments, challenge MA Financial's revenue and profitability growth.

Catalysts

Provides various financial services in Australia.

• The anticipated closing and deployment of the $1 billion Warburg Pincus Residential partnership are expected to significantly bolster assets under management (AUM), contributing to revenue growth through increased management fees.
  
• The listing of the MA Credit Income Fund is set to expand capital sources, improve product offerings, and increase recurring revenue by tapping into retail and listed markets.
  
• MA Money's loan book has experienced accelerated growth, with expectations for it to generate substantial earnings in the coming years, enhancing the company's revenue base and net margins.
  
• Expansion efforts into the U.S. private credit market represent a significant opportunity for revenue growth and diversification, capitalizing on the underserved market with strong demand for private credit products.
  
• Finsure's growth and technological advancements in loan processing are expected to maintain market dominance and contribute to topline growth and improved efficiency, subsequently enhancing net margins.

MA Financial Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MA Financial Group's revenue will decrease by 24.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.8% today to 20.2% in 3 years time.
• Analysts expect earnings to reach A$94.3 million (and earnings per share of A$0.55) by about March 2028, up from A$41.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$111.7 million in earnings, and the most bearish expecting A$75.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.4x on those 2028 earnings, down from 28.0x today. This future PE is greater than the current PE for the AU Capital Markets industry at 14.4x.
• Analysts expect the number of shares outstanding to decline by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.4%, as per the Simply Wall St company report.

MA Financial Group Future Earnings Per Share Growth

Risks

• The residential loan market remains highly competitive, which may impact net interest margins and ultimately pressure MA Money’s profitability and revenue growth.
  
• Transaction-based revenue, especially from performance fees, remains uncertain and below trend, which could affect overall earnings.
  
• The U.S. private credit platform investment is front-loaded and still in its early phase, leading to potential delays in revenue contribution, thus putting pressure on short-term margins and earnings.
  
• Increasing redemption rates in open-ended liquid strategies could negatively impact net asset inflows, affecting growth in asset management revenue.
  
• Market conditions remain variable for corporate advisory, with elongated deal timelines, which could lead to delays in achieving revenue targets from this segment.

Valuation

• The analysts have a consensus price target of A$9.572 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$11.0, and the most bearish reporting a price target of just A$8.74.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$467.3 million, earnings will come to A$94.3 million, and it would be trading on a PE ratio of 22.4x, assuming you use a discount rate of 11.4%.
• Given the current share price of A$7.28, the analyst price target of A$9.57 is 23.9% higher.
• 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.