Hi
@Moonshine66GQG are $USD2.1B in FUM away from achieving what they said in the issued prospectus for the full year ending June 2022 -
note: $US2B is less than half what GQG typically grow FUM at in a quarter, *see FUM table below. This is what the $2 issue price is based on. The revenue and EPS will go higher the more the business grows FUM (Fund Management business 101). There isn't much risk to the downside for GQG, as the PE Ratio is only 16.74 times EPS compared to Magellan's 15.54 times. If GQG were valued at the same PE Ratio as Magellan then it would be priced at $1.80, but then GQG has grown FUM 26% more than Magellan in the last year (*see FUM table below).
To understand the nuances of GQG more and where it is heading:
1> Look deeper into the financial detail of the prospectus
2> Take some time to understand how the fund management revenue model works (similar to Magellan's Fund Management business)
3> Delve deeper into the FUM growth trajectory of its US business (20 times Australian addressable market) and its high growth rate despite (*see FUM table below)
Here are some FUM numbers as at today:
GQG's prospectus forecast said they would have $USD92.5B in FUM
GQG has reached $US90.4B in FUM in October 2021
GQG FUM at 30/06/2021 was $US84.735B (*see FUM table below)
Figures from page 15 of GQG's prospectus to determine some ratios are:
- Based on $USD92.5B in FUM
- GQG prospectus forecasts $USD440.5M in Revenue as at FY June 2022
- GQG prospectus forecasts $USD257.9M NPAT as at FY June 2022
- GQG's current revenue figure is $USD329.3M for FY June 2021
- GQG's current NPAT is $USD257.9M for FY June 2021
If you assume GQG's current FUM growth rate slows - not current 38% growth rate (*see FUM table below), but 30% from June 2021, GQG are on target to have $USD110B in FUM for June 2022.
Using the ratios based on prospectus we can anticipate what will occur based on revised FUM growth:
Ratios based on prospectus forecast1> Revenue to FUM ratio is 0.476 basis points (Revenue to FUM - $US440.5M/$US92.5B), this is effectively the fees GQG charge on FUM
2> NPAT margin is 58.5% (NPAT to Revenue - $USD257.9M/$US440.5M)
Revised Revenue and NPAT based on higher growthIf we simply assume that GQG FUM will be $USD110B, the following is feasible:
1> Revised revenue ($USD110B*0.00476) = $USD523.6M
2> NPAT margin ($USD523.6M*0.585) = $USD306.31M
To put this into context it means:
1> Revised Forecast earnings per share in AUD goes from 11.6c to 14.2c (this is based on a AUD/USD of 0.7292, prospectus assumed 0.7300)
2> EPS revised forecast to be 22% higher than current Financial Year - if FUM growth slows to 30% per annum
3> Assume GQG PE Ratio stays the same as current valuation of 16.74 times, means share price will move up to $2.37 (or a 22% share price increase for a business that is growing)
4> GQG is in the middle stages of growing FUM just like what Magellan was a few years ago. Current FUM growth on an annualised basis is 42.6%.
When Magellan had comparable FUM growth they had an average PE Ratio of 25 times earnings (during 2018-19). GQG has a PE Ratio of 16.74 times based on this years numbers. What happens to GQG share price when they achieve historical MFG FUM growth rates? If GQG share price is re-rated based on achieved growth and matches MFG's historical PE Ratio rate, then share price could be worth between $2.90 (based on 11.6c EPS) and $3.50 (based on 14.2c EPS).
@Moonshine66 - you are correct, there is no rush to buy in. The market is not able to see the underlying value of a strong growth stock until it achieves it and this is the same thing that occurred with Magellan when they first listed. If you go back to 2012 when Magellan's share price was around $2, EPS was 9c (compared to GQG at 11.5c). MFG PE Ratio was 22.22 back in 2012 and the PE Ratio started to extrapolate in 2019 growing to 30 times and more into 2020 and then getting crunched recently, back down to 15.54 times where it has been for a while now (because FUM growth has reduced compared to historical growth rates - *see FUM table below).
Until GQG management demonstrate what they can achieve financially, the share price will hover around at the current share price (looking at FUM just reported they are already doing it, *see FUM table below).
Here is the FUM table with the last month reported:
Thanks to those that have taken the time to read this far.
Best of Luck
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