Collected Wisdom

This week we look at Macquarie Group, Magellan Financial Group, Ansell, JB Hi-Fi and REA Group.

Summary: Macquarie Group’s latest guidance has seen profit targets drift downward, while analyst consensus remains a hold for Magellan Financial Group despite its maintaining good FUM figures in this market. Analysts remain cautious on Ansell Group after the company announced weaker than expected sales figures, while REA Groups solid revenue growth was pleasing and we wait to see the effects of Dick Smith store closures on JB Hi-Fi.

Key take out: Watch out for analyst figures on JB Hi-Fi to be revised upwards as Dick Smith store closures play out.

Key beneficiaries: General investors. Category: Shares.

This is an edited summary of the Australian investment press: It includes investment newsletters, major daily newspapers and broker reports. The recommendations offered represent the views published in the other publications and may not represent those of Eureka Report. This article is general advice only which has been prepared without taking into account your objectives, financial situation or needs. Before acting on it you should consider its appropriateness, having regard to your objectives, financial situation and needs.

Macquarie Group Limited (MQG)

The investment bank Macquarie Group issued guidance to the market last week (February 4) with the group's operational briefing. In such volatile market conditions investors could expect a company’s earnings that are closely linked to the fortunes of the market to come under pressure. That is what is happening here.

In the update Macquarie flagged headwinds appearing for its capital markets facing businesses. Despite this the group maintained guidance expecting FY16 results to be ahead of FY15.

In the face of tougher times ahead for Macquarie, analysts are not abandoning the investment bank. Rather, they are sticking with it, adjusting price targets but still seeing significant upside. Businesses that are leveraged to the market as much as MQG is will be sold down in negative markets, and conversely bid up when markets are popular again.

The average 12 month price target has drifted down as the share price has moved, however it is still significantly higher than the share price at the moment. Currently the 12 month average sits at $80.52, with the share price dropping to $61.12 at the time of writing.

Investors are generally advised to hold Macquarie Group Limited at current levels.

Magellan Financial Group (MFG)

Continuing on from the theme above, we look at another company leveraged to the market. Magellan Financial Group has been one of the best performing stocks for a number of years and has set a benchmark for other listed fund managers.

January was a troublesome month for market participants and Magellan was no exception, dropping $7 off its then $27 share price. Last week the global fund manager released funds under management (FUM) numbers. The numbers show a marginal decrease in total FUM coming in at $39.57 billion. This is $89 million down when compared to the month end for December 2015.

Even though it appears Magellan has been able to maintain FUM in a very tough market, investors still choose to slug the share price. One analyst sees this as opportunity, upgrading the call and making MFG a buy with a price target of $24.84.

Despite the above upgrade, the consensus remains a hold for MFG. Macquarie's analysts took the opportunity to review the funds management space as a whole. MFG ranked fourth overall with a favourable long term outlook. Coming in on top was Henderson Group (HGG) with the most upside. Read our review of HGG from last year: Is there more value in Henderson?, July 20 2015.

Magellan’s share price has been pulling back and has just dipped below the average 12 month price target, which is set at $23.38.

Investors are generally advised to hold Magellan Financial Group at current levels.

Ansell Limited (ANN)

Ansell failed to rise to the occasion last week when it issued guidance around its first half numbers, which were followed by the actual report this Monday. Shares in the protection manufacturer were sold off heavily off the back of the early guidance.

Ansell downgraded earnings per share (EPS) guidance from the range of US$1.05 - $1.20 to US$0.95 - $1.10. Management say this was due to weaker sales across the board extending from “a general weakening in the external economic environment”. I guess that follows through to a general weakening in the internal economic environment at Ansell.

Despite management’s optimism regarding second half earnings, a number of analysts have remained cautious. The bulk of analysts have kept ANN as a hold, but one or two have upgraded their call due to the sharp share price decline seeing it as opportunity.

Organic growth is expected to be hard to come by. Analysts anticipate growth to come through acquisition and more so through cost outs. But as one stated, growth is growth no matter how it comes in this environment, where there is little of it in the first place.

The average 12 month price target currently sits at $18.29, with the share price at $15.97 at the time of writing.

On another note, each reporting season it would appear analysts try to outdo each other with the headline puns for Ansell. The team at Morgan Stanley have taken the gong this year hands down. Well done team.

Investors are generally advised to hold Ansell Group as current levels.

REA Group Limited (REA)

REA (majority owned by News Corporation, publisher of Eureka Report) once again pleased the market by being in line with most forecasts and marginally above others when it announced its first half results on Friday (February 5).

Solid revenue growth of 20 per cent pleased the market, as did earnings before interest, tax and amortisation (EBITDA) up 29 per cent and earnings per share (EPS) up 28 per cent. Not so pleasing to investors and analysts was the 10 per cent growth in costs. Also not pleasing was the flagged increase of costs to the back end of FY16. Management stated due to timing differences, the costs will be weighted towards the back end.

The increase in costs has not deterred analysts. The recent pullback in the share price sees the buy calls remain for REA. The online property market is a space that has long term growth thematics in Australia and abroad, as REA has proven. Analysts have flagged the price decline as an opportunity to invest at or below their estimation of intrinsic value.

The average 12 month price target has been steadily increasing and currently sits at $54.12 with the share price at $48.22 at the time of writing. 

Investors are generally advised to buy REA Group Limited at current levels.

JB Hi-Fi Limited (JBH)

JB Hi-Fi reported on Monday to mixed reviews. It met some analysts’ expectations and missed others. But the result was secondary to the talk of the implications of the collapse of Dick Smith.

Dick Smith’s discounting appears not have impacted JBH trading, as was previously flagged when we last covered JBH in Collected Wisdom. January trading has also been very solid with total consolidated sales growth up 10.2 per cent compared to January 2015, which was up 8.9 per cent.

Analysts are starting to build in the assumption that JBH’s competitor is down for the count and store closures are looming. Look for analysts to revise their figures upwards if and when this scenario starts to play out as JBH will be a clear beneficiary.

For now analysts have JBH as a hold with the average 12 month price target and share price in line. The target is $22.57 and the share price at the time of writing is sitting at $22.

Investors are generally advised to hold JB Hi-Fi Limited at current levels.