What’s Hot In Financial Sector – MFG, HUB, BEN

Australia’s financial services sector contributes significantly to the national economy and has been a major driver of economic growth for years. The sophisticated financial services sector of Australia is well placed as a financial hub in the fastest-growing region of the world. The highly skilled and multilingual workforce, advanced business infrastructure and the compulsory retirement savings scheme have added to the strength of the sector. The Government of Australia is determined to stay rooted in Australia’s financial sector expertise and strong regulatory environment and has been taking many initiatives to support this objective.

RBA’s Financial Stability Review

The Reserve Bank of Australia (RBA) mentioned in its ‘Financial Stability Review for April 2019’ that the ability of the Australian financial system to withstand shocks has continued to strengthen with the increase in banks’ capital ratios. The central bank mentioned that banks now hold enough capital to tolerate the shocks of similar magnitude to most historical bank crises. However, RBA highlighted that resolving flaws around culture and governance revealed in the Royal Banking Commission’s inquiry poses a challenge for Australia’s financial system. The months-long inquiry undertaken by the Royal Commission uncovered the misconduct by several entities that enjoyed a substantial profit, causing huge losses to many customers.

The Australian institutions and regulators are already taking the necessary steps post the royal commission’s inquiry, but there is more to be done to lower the risks of future misconduct. The central bank informed that the costs of compensating mistreated customers and implementing these changes would possibly affect the profits of financial institutions.

APRA’s Take on Financial Sector

Australian Prudential Regulation Authority , that promotes stability in the Australia’s financial system and supervises institutions across insurance, banking and superannuation, has also made some amendments recently in response to the Royal Commission’s recommendations. The regulator has asked several banks to strengthen their intra-group funding arrangements that have a clause to withdraw funds at a short notice in a financial stress scenario. The regulator has notified HSBC, Macquarie Group Limited (ASX: MQG) and Rabobank about the same, on finding them breaching the regulatory standards. APRA intends to ensure that these banks can resist shocks at the time of financial stress.

The regulator has also proposed the creation of a new prudential standard to place the country in compliance with improved international remuneration practice. APRA has targeted the bonuses of the banking executives under the new proposed prudential standard as the existing bonus structures were found to result in poor treatment of customers in the royal commission’s inquiry. Previously, the regulator raised the capital requirements of the big four banks to beef up their loss-absorbing capacity.

ASX-Listed Financial Sector Stocks

The financial sector constitutes a great percentage of the Australian stock market; and the sector has remained a good choice for investors. In the wake of undergoing developments in the Australian financial sector, investors might be interested in keeping a watch on the related stocks. Let us take a look at few of such ASX-listed stocks:

Bendigo and Adelaide Bank Limited

Australia’s fifth largest retail bank, Bendigo and Adelaide Bank Limited (ASX: BEN) has been serving its customers for more than 160 years. It is among the top 100 listed companies on ASX, having over 110,000 shareholders. The purpose of the bank is to feed into the prosperity of its customers and communities by reducing complexity and investing in capability.

Recent Updates

Bendigo and Adelaide Bank Limited has announced the issue of 7,487 fully paid ordinary shares on 1st July 2019 for converting fully paid unquoted shares to fully paid quoted ordinary shares (BENAK – 1,560, BENAA – 3,898, BENAB – 691 and BENAD – 1,338).

The bank has also recently declared a dividend amounting to AUD 1.846 on its convertible preferred security, BENPF, for a period of six months. The dividend is 100 per cent franked and is to be paid on 16th December 2019. It carries an ex-date and record date of 3rd December 2019 and 4th December 2019, respectively.

The annual dividend yield of the bank currently stands at 6.04 per cent (as per ASX).

Financial Performance

The bank announced solid half-year results for the six months ending 31 December 2018. The bank reported a rise of 0.2 per cent in its after-tax statutory profit to $203.2 million relative to the previous half figure. The Underlying cash earnings of the bank were at $219.8 million (same as in previous half).

Source: Company’s Presentation (11th February 2019)

Stock Performance

BEN ended the trading session lower at AUD 11.500 on ASX on 26th July 2019, witnessing a dip of 0.77 per cent compared to the previous closed price with a market capitalisation of ~AUD 5.7 billion. The stock has generated a return of 10.49 per cent on a YTD basis while delivering a 48.33 per cent return in the last ten years.

Magellan Financial Group Limited

Formed in 2006, Magellan Financial Group Limited (ASX: MFG) safeguards and grows its clients’ wealth by investing in some of the best companies in the world. The company has generated a track record in protecting wealth for its investors. The stock of the company is among the top 100 stocks listed on the ASX by market capitalisation. The company has recently pioneered a paperless way and developed sustainable strategies to invest in active global equities on the Australian Securities Exchange.

Funds under Management- June 2019

The company has recently released an update on Funds Under Management (FUM) and performance fee for June 2019. Magellan recorded net inflows of $488 million in June that included net institutional inflows of $356 million and net retail inflows of $132 million. The company’s Average FUM for the year ending 30 June 2019 was $75.8 billion. For the same year, the company is entitled to estimated performance fees of ~$83 million.

Financial Performance

The financial results for the period ended 31 December 2018 were released on 14th February 2019. Magellan notified that its adjusted after-tax net profit improved by 62 per cent to $176.3 million during the period. The company also reported a rise in its Average Funds Under Management by 35 per cent to $72.1 billion, and an increase in its interim dividend by 66 per cent to 73.8 cents per share.

Source: Company’s Presentation (14th February 2019)

Stock Performance

The company’s stock closed the trading session higher on 26th July 2019 at AUD 61.600 with a rise of 0.3 per cent relative to the last closed price. MFG’s market capitalisation was recorded at ~AUD 10.88 billion at the time of writing the report. MFG has also delivered a tremendous return of 162.82  per cent on a YTD basis.

HUB24 Limited

Established in 2007, HUB24 Limited (ASX: HUB) holds a strong track record of providing best-in-class solutions in the financial services sector. The company binds advisers and their clients with the help of innovative solutions, producing opportunities. The company’s premium investment and superannuation platform offers a wide choice of products and an innovative experience to investors and advisers.

Recent Update

On 16th July 2019, HUB24 released its Quarterly update for the June 2019 quarter. The company attained a record Net Inflows of $979 million (up 32.4 per cent on pcp) in the June quarter and ended the FY with the annual Net Inflows of $3.9 billion (up 60.6 per cent on pcp). The Funds Under Administration (FUA) of the company rose 54.3 per cent on pcp to $12.9 billion at 30 June 2019.

Financial Results

HUB24 recently released sound financial results for the half-year ended 31 December 2018. The company witnessed a rise of 46 per cent in the Underlying Net Profit After Tax to $3.1 million relative to 1HFY18. The Underlying EBITDA of HUB24 also improved 32 per cent on 1HFY18 to $6.5 million. HUB24 set a new record for the flow of net funds during the period, at $2.1 billion with a 95 per cent rise on 1HFY18.

Stock Performance

HUB settled the day’s trade at AUD 12.300 on 26th July 2019, up by 1.4 per cent with the market capitalisation of ~AUD 756.06 million. The stock has delivered a YTD return of 4.48 per cent.


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