MA Financial 2023 profit dives 32 per cent as transactional activity falls and asset values hit

The company says it is well placed to capitalise on any rate cuts as it tells investors that aggressive interest rate rises will continue to weigh in the short term after a profit plunge.

The building blocks are in place for MA Financial to reap the benefits of any interest rate cuts, according to its joint chief executives, despite cautioning investors that aggressive rate rises in the past year will continue to weigh on real estate assets in the coming year.

The listed financial services firm saw its full-year profit tumble 32 per cent to $42m in the 2023 financial year — an 11 per cent miss on expectations — after lower transactional activity and revisions to asset values impacted performance fees and corporate advisory revenue.

MA Financial joint chief executive Julian Biggins said the group opted for growth in the past year despite interest rates hurting confidence across M&A and corporate advisory sectors.

“Confidence levels were low, equity markets were volatile, interest rate uncertainty meant that the M&A equity capital market was subdued, while real estate asset values plateaued because of interest rates, which impacted performance rates,” he said.

“While headline might look soft, when you look at the underlying result, it’s very strong, and probably one of our strongest since founding the group 15 years ago. We made the decision to continue investing for growth during the year.”

Investors dumped shares following the company’s update and outlook with shares down by 20.5 per cent to $4.47 on Thursday.

Performance fees decreased 82 per cent from the 2022 financial year to $10m, largely due to the prior period recording an elevated performance fee contribution from the Group’s Hospitality assets which was not anticipated to be replicated in FY23.

Corporate advisory and equities EBITDA tumbled 51 per cent as difficult macroeconomic conditions and market volatility impacted equity capital markets activity and increased execution risks and timing on advisory transactions.

Post balance date the transactional environment has shown some signs of improvement allowing several deals to close on which work was largely completed in FY23.

“It was a tough year for everyone in corporate advisory,” Mr Biggins said. “It’s probably the worst conditions we’ve seen in 15 years, to be honest, and that goes across the street, not just us.”

MA Financial joint CEOs Chris Wyke and Julian Biggins expect ongoing economic volatility to impact the company in the year ahead.

MA Financial said while it expected continued growth in asset management fund flows, recurring revenue margin is expected to be lower in fiscal year 2024 due to the impact of interest rates on real estate, the sale of approximately $180m of hospitality assets and the FY23 margin being elevated due to strong performance of Private Credit Funds.

It also forecasted corporate advisory revenue per executive targeted at the lower end of the Group’s $1.1m to $1.3m historical average, due to ongoing market uncertainty.

Most economists expect that the central bank will be in a position to cut rates from the back half of this year after lifting the cash rate by 425 basis points since May 2022 to 4.35 per cent, but it generally takes several months for them to be felt.

Mr Biggins said that as interest rates roll over, asset values will climb again and cyclical revenue streams return too.

“We’ve built the tides on the recurring revenue, and the tide’s good because that creates a stronger foundation. As the cycle turns, we’re very well-placed for those cyclical revenue streams to return,” he said.

MA Financial joint chief executive Chris Wyke told The Australian that there was lots of money waiting to be deployed in M&A markets, but added that the outlook very much depended on what happened with interest rates as he saw early momentum with yield closure.

“The bellwether is that rates conundrum,” he said. “There is capital out there that wants to be deployed and it is less nervous than it was last year in terms of conviction around decision-making and deployment, but there still remains a degree of nervousness.”

MA Financial invested in the expansion of MA Money, which saw its loan book jump 150 per cent, as well as being in the early stages of building distribution capability in the United States for its Private Credit Funds.

“The States are massive. It’s the largest credit market in the world and it’s the largest investment market in the world, so we are positioning that platform to tap into that and growth is critical. What that entails is us investing more resources in distribution,” he said.

“We’re hoping by the second half of the year, we’re starting on that glide path to attract money in the States for the US-based investment team to manage.”

Underlying revenue of $269.9m was down 11 per cent on FY22 and recurring revenue was up 23 per cent growth. Gross fund inflows generated 27 per cent growth to a record $1.94bn over the period, while earning per share was lower than expected at 17.8c, down 36 per cent from the previous fiscal year.

The pair said that despite the challenging economic backdrop the group still remained on target to deliver its fiscal year 2026 business targets.

The full-year dividend is unchanged from a year ago at 20c.