Australia | Jul 23 2007
By Chris Shaw
In April New Zealand-based Guinness Peat Group sold its 19.4% stake in Australian Wealth Management (AUW) and since that time the stock has done little as the premium for potential corporate activity has eroded, meaning its shares have underperformed its wealth management peers.
According to Intersuisse this underperformance is now offering an opportunity in the stock given the market overall remains strong and the outlook for the investment management sector continues to be positive given the ongoing flow of money into superannuation.
The broker rates the stock as a Buy in the short-term in the expectation the company will post a good second half result given the interim result was solid and conditions have continued to be favourable since that time.
In support of its view Intersuisse points out the company offers exposure across the superannuation value chain, as its operations range from the giving of advice to managing investment funds, providing platforms and estate planning.
There is potential for earnings upside in the short-term in the broker’s view from savings from the ongoing integration of Select Managed Funds, while longer-term it expects the merger will increase the cross-selling opportunities for management.
Acquisitions also represent a possible future growth avenue as seen by the recent purchases of i.super and the Finium corporate superannuation operations, which the broker notes added around $1.25 billion to the company’s funds under management.
This combination of factors sets the company up to potentially grow earnings at a faster rate than the industry average, which in the broker’s view is justification for the shares to trade on a premium multiple.
It expects there will soon be a renewed focus by the market on the company’s earnings growth outlook, which it suggests is solid given its forecasts call for profit to grow from the $23.8 million recorded in FY06 to $63 million this year and $80 million in FY08, these estimates having been increased by 3% and 4% respectively. In comparison, Thomson One Analytics shows median profit forecasts of $61.2m this year and $77.7m in FY08.
The broker estimates the company is on a P/E (price to earnings ratio) of 24.5x this year, falling to around 19x in FY08, while on its numbers the stock offers a FY08 yield of 4.5%, fully franked.
The FNArena database shows the stock is rated as Buy three times and Hold twice, with an average price target of $3.08, while the median price target according to Thomson One is $2.96.
Shares in Australian Wealth Management are slightly weaker today in a lower overall market as at 2.30pm the stock was down 3c at $2.66.