Confident MA Financial ramps up guidance as deal frenzy rolls on

MA Financial has jacked up its earnings guidance seeing strong growth in assets under management and no sign of the frenzy of mergers and acquisitions abating.

MA Financial’s joint CEO Chris Wyke says frenetic deal activity is being fuelled by confidence, liquidity and the take-up of Covid-19 vaccines. Picture: Adam Yip

The merger and acquisitions frenzy has a way to go driven by cheap debt, and alongside strong growth in assets under management, has given MA Financial confidence to jack up earnings guidance.

MA Financial, formerly Moelis Australia, ramped up guidance on Wednesday despite Covid-19 headwinds impacting its investments spanning the pubs, shopping centre, real estate and aged care sectors. The group’s broader divisions include asset management, investment banking and lending.

MA Financial reported a 60 per cent surge in statutory net profit to $14.3m for the six months ended June 30, as revenue climbed, while underlying profit jumped 93 per cent to $23.4m. The strong result and momentum after June 30 had the firm signalling that annual underlying earnings per share will rise between 20 per cent and 30 per cent on 2020, up from prior expectations for 10 per cent to 20 per cent.

MA Financial’s shares soared 12.7 per cent to $6.23 on Wednesday, marking the highest closing price since May 2018.

The results said the “most significant impact” from Covid-19 restrictions related to its NSW hotel venues, which would weigh on distribution income and hotel operator fees.

Still, joint MA Financial chief executives Julian Biggins and Chris Wyke point to plenty of growth levers at the company, despite some missteps in investments such as ASX-listed Japara Healthcare.

“There’s a lot of growth in the business,” Mr Biggins said. “We’ve really just seen a consistent building in flows coming into the business both domestically and from our offshore channels.”

Mr Biggins and Mr Wyke also don’t see heightened levels of takeover and deal activity abating, as companies seek out growth with ultra-cheap debt.

“There’s a lot of money out there and people want to find a home for it and that confidence is there to do deals because of the vaccine and the lead we’ve seen from other countries globally,” Mr Wyke said. “The trade now is risk on, and with the stimulus it’s a growth play again.

“The market has really moved massively.”

He believes the Reserve Bank will in 2022 make a close assessment of the wash-up of this year’s extended Covid-19 lockdowns and the business sector fallout.

“It will be interesting to see how the shake-out of the current restrictions have impacted businesses and their operations this go round with what’s been put on the table. Whether or not it leaves deep scars or whether or not it can be a V-shaped recovery,” Mr Wyke said.

“If you are looking at the deeper scars then they’ll obviously be reticence to move on rates as there will be a weakened economy. But if it does bounce pretty quick I think you are going to see that (rates) rhetoric come to the fore, I’d imagine coming into the first half of next year.”

MA Financial saw assets under management rise 21 per cent to $6.1bn in the first half, buoyed by base, performance and transaction fees.

Mr Biggins said the firm wanted to continue that growth trajectory by building out its investment strategies.

“We’d like to be a lot bigger than $10bn but I wouldn’t want to put a time frame on it,” he added.

MA Financial’s corporate advisory and equities unit posted a record first-half underlying revenue contribution, while its new stand-alone lending division saw its loan book grow to $375m.

The results also highlighted the proposed delisting of the Redcape Hotel Group, in which MA Financial, its funds and executives own about 44 per cent.

“We’re disappointed that the listed market just hasn’t worked out for Redcape … The big get bigger and the smaller have higher hurdles to jump so passive money has changed the market,” Mr Biggins said.

On the agreed takeover of aged care provider Japara by Calvary, Mr Biggins said he believed the $1.40 price was fair, even though MA Financial had advised a rival bidder.

MA Financial bought a strategic stake at a higher price in 2017, but has benefited from dividends.

“We obviously didn’t anticipate the royal commission or Covid but we learnt a few things on the journey,” Mr Biggins said. “It’s a lesson.”

MA Financial declared an interim dividend of 5 cents per share and is targeting a combined full year dividend higher than that paid in 2020, and at the “upper end” of a 25 per cent to 50 per cent payout ratio range.

The firm faced some criticism early this year when it repaid staff pay cuts but retained JobKeeper payments.