Magellan Financial Group (MFG) is an Australian based specialist fund management group. The group is involved in the development of globally focused investment funds for both retail and institutional investors.

The company has three main investment funds:

 
1H13 results

MFG’s 1H13 results were amazing. Revenue came in at $32.9 million, a 112% jump on the same period in FY12. Net profit was $20.9 million, a staggering 195% increase on the prior corresponding period.

The group’s operations over the period were characterised by further growth in funds under management, the strong investment performance of its managed investment funds, and further improvement in the group’s net assets per share.

Performance fees and funds under management

The group has two main sources of income, one via management fees, which are set between 1.25% and 1.35% of funds under management.

The other is via performance fees, which are calculated on a six monthly basis at 30 June and 31 December with MFG earnings fees on the excess return (the total return of the fund above the respective benchmark).

 
The performance fees has been the main driver of MFG’s earnings given the fund’s ability to outperform the benchmark – the Magellan Global fund has outperformed on average by 10.2% a year since its inception.

The group has also enjoyed strong inflow of funds, with $1.55 billion added in May alone.

MFG’s funds under management now stands at an impressive $12.9 billion, a massive increase from a year earlier where it held $3.7 billion.

Outlook

MFG has steadily been growing funds under management over the last few years and we see this continuing.

The group has already a received a $396 million mandate from an institutional global equities firm, which commenced the first of this month. We expect continued inflows and performance fees to drive MFG ‘s share price to new heights.

Newcrest was listed as a share to buy for our members on June 14th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.

Monadelphous Group (MND) is a leading engineering group providing extensive engineering construction, maintenance and industrial services to the mining, energy and infrastructure sectors.

The group comprises of the following three business groups:

>> Engineering Construction, which includes Electrical and Instrumentation Services
>> Maintenance and Industrial Services
>> Infrastructure, which includes Aviation Support Services

1H13 results

MND’s positive first half results have been largely overshadowed by a severe slowdown in tendering activity among the major contractors.

The group’s 1H13 revenue was up 46.6% on-year to $1.3 billion, coming on the back of a surge in construction activity.

However, EBITDA margin declined 60 basis points from 1H12 as the bidding war between mining services companies lowered contract tender rates (similar to how retailers reduce prices to win sales).

Worsening industry conditions have seen Boart Longyear (BLY), Transfield Services (TSE) and UGL Ltd (UGL) all issue profit warnings in recent weeks.

In addition to revenue, the sharp decline in industry activity is likely to pressure MND’s operating cash flow (OCF).

MND’s OCF slid 37% from the prior corresponding half, and we expect another decline in the current half as weaker revenue squeezes the company’s cash intake.

Chinese growth concerns dims outlook

Unfortunately, we see MND coming under increased pressures in near term as industry activity slows in the face of a weakening Chinese economy.

Chinese GDP rose just 7.7% in the year to March – weaker than economist estimates.

Furthermore, the Chinese manufacturing sector entered contraction territory in May for the first time in seven months, according to the HSBC Flash Manufacturing PMI.

There appears to be an emerging consensus that the resources boom has peaked, putting mining services contractor in an uncomfortable situation where they face lower profit margins.

We expect MND’s own margins to come under further pressure as revenue growth slows and cost-cutting initiatives take time to play out. We don’t think it can repeat 1H13’s solid result, with revenue likely to suffer amid reduced tendering activity.

Monadelphous Group was listed as a sell share for our members on June 3rd. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.

iiNet (IIN) is the second largest Internet Service Provider (ISP) in Australia.

IIN has built its own network (the iiNetwork), boasts the largest Voice over IP network in the country, abolished monthly phone line rental with Naked DSL and has released wireless modem-and-phone-in-one BoB to the world.

The firm was included in the ASX 200 in 1999 and employs about 2,000 people at present.

The group’s strategy to increase its value is to grow organically and inorganically. IIN recently acquired TransACT in 2011 and Internode in 2012. These acquisitions are expected to deliver considerable synergies to the firm in the coming years.

Recent Results

In its 1H13 report, the firm’s NPAT increased to $31.9 million, 122% higher compared to the prior corresponding period.

Aside from the aforementioned, one of the main highlights of the recent report is the significant 73% increase in the firm’s EBITDA compared to the 1H12. This translates to a 35% improvement in the firm’s EBITDA margin from the prior corresponding period. The solid results were primarily due to the strong organic growth and synergies realized from its acquisitions.

Below are charts of the firm’s reported EBITDA and reported NPAT performance in its 1H13 results. One can easily see the vast improvement from the 1H13 results compared to the 1H12.

Peer Comparison

Despite the recent rally IIN’ share price, the company stacks up rather well when compared to its peers.

IIN is trading on a forward P/E of 16.8x.

This compare to peers Amcom (AMM) and TPG Telcom (TPM) which are trading 22.1x and 19.6x next year’s earnings.

IIN’s forecast dividend yield is around 3.8% more or less in line with AMM’s and higher than the 2.5% forecast for TPM.

Outlook

As previously mentioned, the firm’s recent acquisitions are expected to deliver synergies to the firm.

More importantly, both TransACT and Internode has a solid customer base, which will translate to higher potential earnings growth in the coming financial years.

Some of the benefits from the acquisitions have already manifested in the firm’s recent 1H13 results. We expect the firm to realize the full benefits from the aforementioned in the medium to long term.

Moreover, the firm has been successful with increasing its market share on the back of competitive rates, attractive combination of services, and its acquisitions.

Iinet was listed in the traders report as a buy share for our members on May 13th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.

AWE Limited (AWE) Company Announcement

AWE Limited (AWE) is a small oil and gas explorer and producer. The majority of its operations are located in Australia and New Zealand, though the company is becoming increasingly interested in international operations.

The company’s major projects are the onshore Casino gas field (Otway Basin, SA), Cliff Head project (Perth Basin, WA) and the BassGas project (VIC & TAS) and now, in the Perth Shale Gas Basin. AWE is listed on the Australian Stock Exchange and is a member of the S&P/ASX 200.

AWE announced that it has it has been advised that the Western Australian Minister of Environment has dismissed the states EPA appeal against its operations in the Perth Basin.

The company said that based on current availability of equipment, it expects that the hydraulic stimulation activities on all three wells will commence during the second quarter of 2012.

Managing Director Bruce Clement said that he is pleased with the decision, and looks forward to test the potential of the wells.

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Mining Shares News: BlueScope Steel (BSL) announced a 1H FY12 loss of $530 million

BlueScope Steel Ltd (BSL) is a major steel company in Australia and New Zealand, supplying flat steel products to the building, construction, manufacturing, automotive and packaging industries.

BlueScope Steel announced a 1H FY12 loss of $530 million, widening sharply from the $55 million loss from same period a year earlier. The result was worse than analysts expected.

The company said that a majority of its loss was made of two main costs; the restructuring of the business cost $260 million, while there was an impairment charge of $184 million on its Australian assets.

BlueScope said that trading conditions were improving, with the U.S. economy showing signs of recovery, but that its performance was not translating due to the high Australian dollar

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National Australia Bank (ASX:NAB) is one of Australia’s “big four” banks, with a focus on regional banking, wealth management operations, international capital markets and institutional banking business. Brands within Australia include NAB and MLC, and the group is represented in New Zealand by Bank of New Zealand. In the UK the brands are Clydesdale Bank and Yorkshire Bank.

Financials stock, National Australia Bank released its first quarter trading update which showed 1Q FY12 earnings of approximately $1.4 billion, 8% higher than the previous corresponding period.

The bank said that revenue was driven by wholesale banking and to a lesser extent, MLC and NAB wealth.

NAB also revealed that it will undertake a strategic review of its UK operations, with a view to reposition the arm to deal with the current economic situation in the region.

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Energy Resources of Australia (ASX:ERA) is a uranium company which mines, processes and sells uranium oxide from the Ranger mine in the Northern Territory and uranium concentrates sourced outside Australia to nuclear electric utilities in Japan, South Korea, Europe and North America. ERA also provides environmental consulting services.

Australian shares, Energy Resources today announced that it will book a loss of $153.6 million for the CY11, compared to a profit of $47 million in CY10.

The company cited that production at its flagship mines was suspended for five months due to heavy rains.

Energy Resources is forecasting a uranium oxide output of between 3000 and 3700 metric tons for 2012, compared to 2641 last calendar year.

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Woolworths (ASX:WOW) operates supermarkets, specialty and discount department stores, liquor and electronics stores throughout Australia. Woolworths also manufactures processed foods, exports and wholesales food and offers petrol retailing.  The Company also operates hotels which includes pubs, food, accommodation, and gaming operations.

ASX Blue chip supermarket giant Woolworths today announced 2Q sales growth of 5.1% to $14.1 billion compared to the previous corresponding quarter, this was in line with market expectations.

The 2Q sales results bought the 1H FY12 sales to $29.7 billion, a 5% increase on the previous year.

WOW also announced that it will sell its Dick Smith consumer electronics business following a strategic review that was announced in November.

Since the review the company said it has received a number of unsolicited approaches in relation to Dick Smith.

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OneSteel Ltd (ASX:OST) is an Australian manufacturer of steel and finished steel products and a leading metal distributor which is listed on the Australian Stock Exchange.

OST, which was spun out of BHP in October 2000, markets products used in the construction, manufacturing, housing, mining and agricultural industries.

OneSteel announced today that it will write-down $150 million of the value of its LiteSteel Technologies business due to weak residential construction activity.

The company said that the financial statements for last six months of the year will include $90 million of the write-down.

OneSteel also announced that it will sell its Piping System business for $67 million to US based McJunkin Red Man.

Together with the sale of related property investments the company expects proceeds of approximately $100 million.

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St Barbara (ASX:SBM) is an Australian Small Cap gold producer and explorer.

SBM’s primary assets are its Southern Cross and Leonora operations, both of which are located in Western Australia. The company purchased the Gwalia (WA) mine in 2005, which has now become its main focus.

St Barbara today announced it has established an on-market share buy-back facility to repurchase up to a maximum of 15 million of its ordinary shares.

The buy-back will be conducted over a six month period.

The company stated the buy-back facility will enable it to apply its strong balance sheet and cash position to consolidate the company’s capital base for the benefit of shareholders.

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