MA Financial Group Limited

Thank you for standing by and welcome to the MA Financial Group half-year 2024 result announcement. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Julian Biggins, Joint Please go ahead.

Good morning, and thank you for joining MA Financial Group's first half FY24 result presentation. My name is Julian Biggins, and I'm sitting here with my fellow co-CEO, Chris Wyke. We also have Giles Boddy, our Chief Financial Officer in the room, and Michael Leonard, our Director of Investor Relations. I am pleased to provide you with an update on how we performed in the first half and our outlook for the future. Let's start on slide six and key themes. Overall, we are pleased with the result as the business performed in line with our expectations in an uncertain and cautious environment. We are pleased to report record gross and net inflows underpinned by our rapidly expanding domestic distribution channel. We've also delivered an increase in recurring revenue over the period as asset management and FinShore both grew their recurring revenue streams over the half. This builds a strong foundation for the future. Both Finshaw and MA Money continue to experience significant growth with MA Money's net interest margin expanding and run rate breakeven now expected by October 2024. The breakeven point for MA Money is an important milestone for the group as MA Money starts to generate profit which will significantly contribute to the group's earnings growth looking forward. Today we announce the launch of two significant institutional initiatives that we believe are also important milestones for MA Financial. The first being the launch of an institutional real estate credit vehicle targeting $1 billion of capital commitments from global institutional investors. The real estate credit vehicle is being launched with Warburg Pincus, who we have been in discussion with for some time. Warburg Pincus is a leading global real estate investor. with over $120 billion of invested capital and a very experienced high-quality partner. We believe that their commitment to MA Financial is a real validation of our platform that will provide considerable benefits over time. The second initiative is a strategic partnership with Flexi Commercial, a part of ASX-listed HUM Group, to acquire up to $1 billion of commercial asset-backed loans. These loans will be funded by a combination of our private credit funds and a global bank, and the partnership provides us with exclusive access to high-quality asset-backed loans sourced by Flexi Commercial. Both initiatives broaden our reach in terms of either institutional investors or assets, which are both critical ingredients in building our asset management business. As expected, investment in the first half provided a headwind for underlying EBITDA and earnings per share. Although as MA money now turns run rate break even this investment headwind is expected to significantly decrease in the second half. Overall it's a very pleasing result in a difficult setting and we're excited about the growth prospects for MA Financial and the new initiatives announced today. As many of you know FY23 and FY24 are transition years for MA Financial as we move from a business more reliant on performance fees and transactional revenue to one that has a very substantial recurring revenue base. We're now in the tail end of this transition period and we'll move through to delivering considerable earnings growth as the established businesses continue to grow and MA money starts to materially contribute to earnings. Now moving forward to slide seven. Our FY26 targets remain unchanged. We remain confident with the medium term growth targets provided to the market last August. and the initiatives announced today demonstrate that we continue to focus on developing new products and adjust the business model as the markets move. We expect to continue to build MA Financial with a mindset of innovation and growth. Turning forward to slide eight. Slide eight provides a snapshot of our result with the financial metrics in line with our expectations and the operating metrics up strongly on the prior period. While underlying earnings per share is down 27%. This largely reflects the strategic investment in the business and an interest rate environment impacting our real estate backed asset classes, offsetting the strong organic growth. Our dividend has been maintained at $0.06 per share fully franked. In terms of operating metrics, assets under management up 13% to $9.7 billion. Gross fund flows up 16% to $1.1 billion was largely underpinned by a 52% increase in domestic flows. Binsure continues to grow quickly with managed loans exceeding 121 billion, up 22% on the prior period. MA money volume growth is accelerating with the loan book reaching 1.4 billion at 30 June, up 231% on the prior period. Corporate advisory had a good start to the year, up 12% on the prior period, at $22 million of revenue. Overall a very pleasing result with the operating metrics all performing strongly in what has been an uncertain and cautious market. Now turning to slide 9 and our financial result in more details. Underlying revenue increased 5% on the prior period with approximately two thirds being recurring in nature. Both FinShore and MA Money were strong contributors to revenue alongside an improved contribution from corporate advisory. Expenses were up 16%, although when you remove our strategic investment spend, expenses were only up 6%, which is a good outcome in an inflationary environment. In line with expectations, investment spend in the first half 24 provided an earnings headwind to Group EBITDA of $8.6 million, or approximately $0.04 per share of underlying earnings. Overall, our guided investment spend for FY24 remains unchanged. MA money has continued to gain momentum with run rate break even expected by October, which is great news after a significant period of investment. Our EBITDA margin is broadly in line with what we were expecting, and if you remove the strategic investment spend, then it would be 36.5%, a lot closer to our FY26 target. Cash and undrawn facilities were almost $100 million at the half, reflecting our preference to keep ample liquidity to support growth. Turning forward to slide 10 and an overview of some of our strategic initiatives. The $13 million impact on EBITDA from strategic investment spend is in line with guidance provided at the FY23 result and the outlined priorities are broadly the same. The brand continues to be a significant focus for the group to broaden the awareness of MA Financial and we commenced the first digital marketing campaign in the half. The US credit platform remains a significant focus as we build out the brand, platform and preferred fund structures. Our view remains unchanged that the opportunity is very significant in asset-backed lending in the US. Over the period, we've progressed our Singapore licence applications and are building out high net worth and institutional relationships in the local market. Given the migration of family offices to Singapore, This market is a significant opportunity for MA Financial. As I have mentioned, the performance of MA Money has been accelerating and we are very confident about the $4 billion loan book target at the end of FY26. This underpins our $15 to $20 million NPAT target which provides material earnings growth over the coming years. Finally, the rollout of middle to our FinShore broker network has continued, and we are pleased with the number of loan applications and customers that are now utilising this technology and continue to work on grander plans for middle. As we mentioned at the FY23 result, the strategic investment spend was expected to be skewed to the first half in FY24, roughly two-thirds, one-third. or $8.6 million in the first half and $4.4 million in the second. This alone provides some in-built growth as we move into the second half. Moving forward to slide 11. On slide 11 we illustrate the financial trends for the group and from this you can see the transition period we've been going through over the last 18 months as we've significantly built our foundation of recurring revenue streams and invested in the business. The business is much less reliant on performance fees than it was two or three years ago. As I just mentioned, as we move into the second half, we expect the investment spend to half and the momentum in the business will support improving operating leverage. Moving to slide 12 and some divisional highlights. Asset management recorded record gross inflows in the first half, underpinned by domestic flows which were up 52% on the prior period. In the first half alone, domestic gross flows were $722 million, representing 65% of our gross flows. Growth in domestic flows continues to be very strong, with the current half annualising at $1.4 billion. As flagged at the FY23 result, our recurring revenue margin was expected to decline in FY23 and in the first half it was 150 basis points, which is broadly in line with where we thought it would be. The reduced margin was a result of market conditions, a temporary fee waiver in hospitality and the AUM composition. We expect recurring revenue margin expansion in the second half to approximately 160 basis points. In lending and technology, the loan book increased to $1.4 billion over the period with a NIM of 1.1%, which was up 20 basis points on second half 23. Finshawe's managed loans increased 22% to $121 billion and brokers grew 21% to $3,453, which bodes well for Finshawe's future growth. It has continued to take market share and demonstrate it's the leading aggregator in the market. Corporate advisory and equities had a good half with over $1 billion of transactions completed and generated revenue of $22 million, up 12% on the prior period. The bias remains to M&A, although equity capital markets are showing some green shoots. Turning forward to slide 14 and our post-balance date activity. Momentum in the asset management business has been retained with gross flows of $323 million in the first seven weeks of second half 24 and net flows of $169 million. Strong flows continue into private credit where we have large diversified strategies with proven track records. Today we announced the launch of the $1 billion real estate credit vehicle, which I'll expand on shortly. As announced yesterday by Hum Group, we have established a strategic financing partnership that will provide our funds and a global bank with exclusive access to asset-backed loans originated by Flexi Commercial up to $1 billion. MA Money volume growth continues to accelerate with $245 million of loan settlements completed by mid-August, taking our loan book to $1.6 billion. Finsure's growth has continued with strong settlements in July and our expansion into New Zealand commenced with our first broker groups on the platform. Corporate advisory has completed or materially de-risked several mandates in the first seven weeks of second half 24, representing an additional $11 million of revenues or fees. We announced two deals this week in real estate and general industrials and there has been a spread in our mandates this year across the various industry groups. Overall the business has started the second half well although market conditions remain variable. Now turning forward to the institutional real estate credit vehicle and Warburg Pincus announcement. Today we announce the launch of an institutional private credit vehicle that will raise capital from global investors to invest in real estate credit. The vehicle's mandate will be more expansive than our current real estate credit strategies and therefore we see this fund as broadening the real estate credit offering. The vehicle is to be launched in partnership with Warburg Pincus and we will both market it globally to Warburg Pincus funds and institutional investors. For those who are less familiar with Warburg Pincus, they're one of the highest pedigree private equity fund managers globally with a significant focus on real estate and presence in Asia. They have been active investors in Australian real estate and understand the landscape well. Their initial launch will seek to raise a minimum of $700 million with a target of $1 billion. The offer is expected to close before the end of the financial year and a number of the Warburg Pincus funds have indicated an intention to invest. MA Financial is committed to co-invest in the vehicle up to a maximum of $20 million. As part of the alignment of interest between MA Financial and Warburg Pincus, we have agreed to issue Warburg Pincus up to 5 million MAF shares at a strike price of $6 per share upon certain capital raising and deployment hurdles being met. We believe that this initiative and partnership with Warburg Pincus will help broaden and build deeper relationships with institutional investors globally. We are positive about the outlook, although markets remain cautious and the short-term economic conditions uncertain. Notwithstanding this, MA Financial is in a strong position to deliver on its medium-term targets and deliver earnings growth for investors. As we move from first half to second half 24, the group's underlying earnings per share will benefit from growth in MA money as it transitions to positive earnings. In asset management, we expect the current inflow trends to continue. The launch of the institutional real estate credit vehicle is expected to increase second half inflows with a target of $700 million to $1 billion, although this will be committed capital and will only contribute revenue once deployed. We're also undertaking a capital raise in the MA Marina Fund to acquire additional assets in the second half 24. Recurring revenue margin is expected to improve in the second half to approximately 160 basis points. Performance and transaction fees are expected to be in line with FY23. MA money to be monthly run rate break even by October 24. The current trajectory of MA money supports us to be on track to deliver $15 to $20 million of MPAT in FY26. To remind investors, this compares to a negative MPAT contribution in FY24 as we invested to scale the platform. Although a break-even now imminent and a loan book of $1.6 billion, there is a clear path to the FY26 target. In corporate advisory, We've currently completed or largely de-risked 33 million of revenue year to date and retain a target of 1.1 to 1.3 million per executive with variable markets pointing towards the lower end of the range. Investment spend remains unchanged with approximately 13 million EBITDA impact in FY24 with a skew to the first half with an impact of 8.6 million. The EBITDA impact is expected to roughly half in second half 24. The lower second half investment impact supports underlying earnings per share growth in the second half. As most investors know, we've been moving through a couple of years of transition and investment supporting a more stable base of recurring revenue compared to prior years which were more reliant on performance and transaction fees. While FY24 remains a transition year, we can now see a return to material earnings growth from a much stronger base. I'll now run through a few divisional slides starting on slide 21 and fund flows. Overall, we're very pleased with the inflows over the half with non-institutional gross and net flows records for the group. Underpinning this growth was the domestic channel which increased to $722 million from $474 million in the prior period or 52%, an exceptional result of a strong base. International flows were a bit more variable with gross flows increasing by 7%, although redemptions increased for different reasons by category. For non-migration flows, the elevated redemptions were predominantly due to a very small number of large investors redeeming for specific reasons. Ignoring these investors, the next flows would have been close to flat. In relation to migration flows, we have witnessed an increase in processing, which has increased the number of applicants being approved into the program. and the number of applicants being approved for permanent residency. Some of the redemptions relating to permanent residency may be a catch up from prior periods. Overall our gross and net flows are at record levels and we are very pleased with the distribution efforts both domestically and internationally. As for institutional flows, these are lumpy by nature and will push our numbers around and therefore we'd split them out from the other channels in this period. Now moving forward to lending and technology and slide 30. The charts show the strength of growth in the Finshaw business over the last couple of years as all operating metrics have increased materially. Broker numbers typically lead revenue growth and have increased 10% over the last six months. Market share has increased which validates the strength of the offering being a combination of technology, systems and service. Managed loans continue to grow and hit 121 billion at the end of June 2024. Given the growth in broker numbers, we anticipate this trend to continue and are really pleased about the performance of Finsure since acquisition. Turning forward to slide 32 and MA money. The MA money loan book reached $1.4 billion at June, which was a 231% increase from the prior period. Average monthly net settlements in the first half was $94 million. Since 30 June, this has increased over $110 million and is accelerating, which provides us with confidence to hit the $4 billion target at the end of FY26. Importantly, the NIM has increased 20 basis points from the second half last year, and we see the competitive landscape improving in favour of the lender. The amount of capital deployed will concertina with the warehouse facilities as we build product for the RMBS market and issue into the wholesale markets. We're very pleased with MA Money and the progress made over the last six months, and the growth opportunity ahead. Moving to corporate advisory and equities on slide 34. The first half result was a solid one given market conditions. As I've mentioned, we generated $22 million of revenue in the period, which was 12% higher than the prior period. This was generated despite a lower headcount of 48 versus 56 in the prior period. We currently see the headcount at 50 stable. In the half, we worked on a number of transactions, including being advisor to Quantum on its sale to Adam Anson Capital, advisor to Decmil on its sale to McMahon, and advisor to George Western Foods on its acquisition of Norcet. We are cautiously optimistic about the second half, although deal timeframes remain elongated and execution risk elevated. Turning to slide 41, where we talk to our medium and longer term investment approach. The principles that we apply to growing the business have remained consistent for some time now and are, we are a builder of valuable businesses in large addressable markets. We focus on scale and diversity in distribution channels. We diversify our source of capital and we have a strong balance sheet to support growth initiatives. Advisory capabilities provide technical edge and our stable and experienced management team is strongly aligned with investors. The business continues to deliver strong operating results across all divisions. As we have discussed, the first half 24 remains a transitional period as we progress through peak investment spend and as that decreases into the second half FY24, we expect to see material earnings growth materialise and this continues into FY25. On behalf of the management team, We are very pleased with the performance of MA Financial and we look forward to executing our consistent strategy in the years to come. With that, I'll hand back to the moderator for Q&A.

Thank you, sir. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you're on a speakerphone, please pick up your handset to ask your question. Again, add a star, then one, to ask a question. At this time, we'll just pause momentarily to assemble our roster. The first question we have will come from Lafitani Soteru. Please go ahead.

Hi guys, Les from MST. I just wanted to start off with Warburg Pincus and wanting to better understand, thinking about this partnership over the medium term, is there the hope that there will be other products, funds that you will launch over time? And trying to understand the mix of that will go into this new fund. vehicle, is it anticipated that their underlying funds will represent 50% or is it more external institutional investors that you're hoping to get in addition to some of their underlying funds? Just trying to think about the mix of the fund in that new vehicle.

A few layers to that left. So the real estate credit vehicle really goes to launch post-announcement today.

So there'll be a global roadshow through sort of Middle East, Asia, and into North America around sort of global institutional investors to subscribe for notes in that vehicle. Warburg Pinkers will market it to their funds. They've said there's an intention to invest in it. So we're highly confident about getting through the target of $700 billion prior to Christmas, and we'd like to think that there's external investors coming into that as well. So it's a full-court press in terms of trying to get third-party LPs into that fund. And what it does is also allow our... institutional distributional marketing team to get out there as well with Warburg Pincus and leverage those relationships. In terms of timing, clearly there's commitments of subscriptions made this side of the new year and then we go into a path of deployment and it's really about originating and managing those assets, right, which is what they're leaning on us to do. And that timeframe could be 12 to 24 months to try to get the money deployed. They're typically going into projects that have a life of call it 18 months to three years of sort of outside range. And then the money can be recycled or it can be returned to investors and we'll just see how that plays out. In terms of other initiatives with Warburg Pincus, obviously they've done a lot of due diligence on our platform, which gives us great confidence in sort of the I guess the quality of the platform we've built and having these sort of conversations and a partnership with them allows us to build on that relationship and pitch other ideas to them and also to other institutions. So we think that does accelerate, I guess, our relationships and opportunity to build other platforms off the back of it.

Yeah, got it. Why don't I move on to the US private credit and platform there and the ambition to do asset-backed lending. Can you add a little bit more colour around timing milestones that we should expect over the next year?

Sure. We're in the process of getting our fund structuring right. That's still taking a little bit more time. We would be expecting to see a bit more capital deployment and growth in that. in the first quarter of next year. There is a bit of a process that we've had to go through and we're still in to get to that start point, but we would anticipate to see a bit more deployment and growth coming through in the first quarter next year.

Okay, got it. And just a couple more from me. So if we look from first half to second half, in terms of some of the big swing factors, that gives you confidence in the uplift in the earnings. So from first half to second half, there's the 10 basis points higher in asset management. There's the halving in the investment spend that you've called out. There's MA money hitting break-even. And then there's the underlying net flows in asset management, not yet the new mandate, which would not yet be deployed, but Would that broadly be the four big swing factors?

It tends to be a little bit of a skew in corporate advisory as well, but it's not always, Matt.

It tends to be a bit of a skew. So I think it's caught all in that. Okay, got it. And so just thinking about financial year 25 and the strategic investment spend, I'm not sure if it's too early, but is there any thought on whether there would be any sort of strategic investment spend type investment you're putting into your thinking for FY25?

I think, like, clearly MA90's been a big focus for the group. The US credit platform's a focus for the group, and later in the year we'll update the market on the sort of investment spend and where we think that lands for 25 as we go through the budgeting. It's clear to say that it's always a feature of our business to try to think about how we can grow earnings in the future, and investment has been part of that. And let us come back to update, but it won't be as material as it was this year. It could still probably be significantly less.

Got it. Makes sense. Thank you.

Again, as a reminder, if you wish to ask a question, please press star, then one on your telephone, and wait for your name to be announced. The next question we have will come from Nick Burgess of Ord Manette.

Yeah, morning, guys. Thanks for taking my question. I've got a couple. So just in asset management flows, just thinking about the trends quarter on quarter, first quarter, second quarter, So it looks like net flows have moderated a touch in the second quarter versus the first quarter update, but only very mildly. So obviously still very strong flow there, but FUM is only up very modestly first quarter to second quarter. So what was the sort of headwind there from a mark-to-market perspective, I suppose?

When you say FUM, you mean RUM?

Yeah, sorry, AUM.

I called out a few things around some large investors on the net flow side and the processing of the visa sort of kicking off again. But on the AUM side, really we've sold a few assets in the hospitality business, which is about a couple of hundred million. And there's been small market to markets, but it's not as material as some other managers that are solely focused on real estate. But there might have been 50 million of other market to markets in there, and that's really caused the headwind in the AUM number in terms of growth half on half.

Yeah, okay, got it. So just related to that, so some positive comments on recurring revenue margins. Just which of the, going back to sort of 160 or more, which of the sort of headwinds specifically are unwinding and which are perhaps something that we might expect a bit further down the line on that revenue margin?

I think a little bit to do with the AUM mix. And also it's to do with our range of fees coming out of the credit funds and just timing around that money being deployed. And we've been accelerating into deployment in the first sort of seven weeks of this year. And we see that, or sorry, this half, and we see that accelerating into the sort of end of the tail of 31 deck. But with the range of fees, as we've said, they're not, you know, they're sort of annual, when you annualise them, they're very predictable, but just through timing, there can be some noise in that as well. And then underlying that is their sort of AUM mix as well, and we've sort of gone through some of the,

I guess the market impacts some of the asset classes as well.

Okay. And so just so I'm clear on that 160 sort of benchmark for the second half, does that include any impact from the Woolberg Pincus deal? So based on what you're saying, it's farmland.

That's right. It's quite free. So really that's looking at a composition of our flows as we're seeing them come through today. When you think about Woolberg Pincus, really think about us raising the money this side of Christmas. will not contribute revenue until we start deploying that money.

Yeah. So will it go into FUM, though, on your FUM updates or not?

It's a very good question. It will be there in FUM in some sort, but I think we need to probably rethink how we present our FUM in terms of what is it allocated or subscribed for and what is actually deployed. Yeah, okay.

Yeah. Okay, that'd be helpful. Thank you. And just lastly, on MA Money, So clearly some good momentum there. Just in terms of the profitability sort of targets and progress that we're talking about for the second half, how should we think about net interest margins over the second half and into next year?

Yeah, so obviously when we were in growth and ramp-up mode for the business earlier on last year and the broader market environment was really competitive, and the net interest margins were in the 0.8, 0.9% zip code. That's now seen a more return to normalization to market. So the current book is around 1.1, and we would expect a small tick up in that coming into the end of the year. And look, hopefully it normalizes back to a more market level where We'd like to see it be in the 1.2 to 1.4 zip code, really. But it's on its own gradual path, but it's moving in the right direction, and the volume is there. Yeah, it continues to improve throughout the year, and I'd say there's been 1.2 for the full year is kind of where we think it will land for FY24.

Yeah, okay. Thanks very much. That's all very helpful. Cheers.

Your next question comes from Richard Coles of Morgans.

Yeah, thanks. And I just want to clarify just one of the last points that Nick just asked. So just understanding the NIM that you're sort of targeting as part of your targets for FY26 in MA monies. So that's in that 1.2 to 1.4 range is the way to think about that. Is that to get those profitability levels you're after? Yes. Okay, no worries. Sorry, I just wanted to clarify that. Thanks very much.

Well, there are no further questions at this time. I'll now hand back to Mr. Biggins for closing remarks. Sir?

Well, thank you, Nick, and thank you for the time for the call and people paying attention, and we'll catch up with those that we have one-on-ones with shortly. Thank you. Have a good day.

Goodbye. Thank you, sir. That does conclude our conference for today.