Hunter Hall Ups Profit Forecast
Hunter Hall International (HHL.AX) got a speeding ticket from the ASX on Monday due to their shares jumping 7.6% during the day. Like the ASX I wondered about the price increase and was mildly surprised I couldn’t find any news other than Platinum Asset Management’s announcement last Friday of an increase in their FUM. It’s good to see the ASX so on the ball, though I prefer them to focus on the bots which appears to be manipulating the price of many small to medium issues these days.
What was more surprising is Hunter Hall actually said something worth reading in their reply to the ASX, as replies to ASX speeding tickets are almost always perfunctory and empty.
3. We estimate that the operating profit before abnormal items and income tax for the half year ended 31 December 2009 will vary from the previous corresponding period by more that 15%, due to an increase in Management Fees resulting from the increase in Funds Under Management by Hunter Hall Equity Trusts, and unrealised profits from the controlled entity, Hunter Hall International Ethical Fund.
The highlighting is mine. More than 15% should not be a surprise as Peter Hall indicated more than 10% at the AGM and with equity markets moving higher since the only question has been how much higher.
For anyone looking for a funds manager then Hunter Hall and Platinum AM should be high on your list.
Disclosure: Long HHL.AX
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I think the eps last year was 63c, so a 15% increase would be about 72c. Give that a 15 multiple would be $10.80. I think thats a fair value. Any performance fees would be a bonus.
Hi Dave
As per the annual report the eps in 09 was 27.55c on $7,442k profit, based on 27,002k diluted shares. M* has eps of 63.2. The difference is mainly the Fair value losses of financial instruments held for trading (12,202k). Removing that gets 73c eps less tax(?) and I’m ready to accept the M* number. Though when Peter Hall says’ net after tax profits and dividends to increase by at least 10%‘, the only definitive number I have without spending more time is 2009s dividend of 45c. I’m not positive which profit Hall is referring to. I’ll go for a 55 dividend with earnings excluding investments of around 70c. HHL is currently on trailing price to eps and dps ratios of 12 and 17. Applying those I get a range of $8.3 to $9.2 with the dps looking high.
I view HHL as a core holding and cash generator for my investing. So unless it becomes 20%+ overvalued I’m not interested in selling. HHL at $7.50 appears undervalued. Throw in a 5-10% extra probable upside this year in earnings and dividends and FUM growth through both super guarantee and fund growth and I can see $10 by year end.
Another scenario is a final leg down in world wide markets decimating FUM via outflows and losses, leading to falling earnings 2012-2014 and compressing ratios. HHL was $3 and $5 ten and six months ago. While we shouldn’t anchor to those prices, there is clearly downside risk, so some points to reassess along the way are required. It’s hard to buy something you recently sold, especially if the price is higher, but if you want to ensure you don’t have major capital losses you have to increase your probability of being wrong in line with the market is telling you.
My cost basis is around $5 and I own HHL is our super fund, throw in 100% franking credits, I can live with the 12.6% cost basis return. Current forward yield for a SMSF is around 8.4%
Dean
good points. They also said they had around 80-90c of near cash, cash and investments in the various funds. I like to take this off the share price and compare this price to the earnings.
Do you have any idea where the performance fees are? Last I heard they were negative $24m I think. At the moment I’m assuming nothing but sometime in the future they are likely to add to the profit.
I realise that there is a risk of a big fall if world markets fall again, which I think is a significant probability. To be honest I wouldn’t mind this as I could buy some more.
Performance fees – West Wind provided lots of feedback on those here. Here’s a snip “The total performance fees are still well out of the money at minus $39.502m on 24 Nov 2009(compared with minus $49.838M at 30 June 2009). However, 2 of the smaller funds are at the point of earning performance fees (GDG and IEF)”.
Hi Dean and Dave
I have had a crack at estimating what HHL’s interim figures may be. They have been a bit slow to release their December performance reports, so I have based my figures on the 31 Dec unit prices.
I estimate that FUM at end of Dec would have been around $2.05b, giving an average for the 6 months of about $1.85m. On this basis, revenue from funds management would be around $14.8m. If expenses were similar to previous 6 months they would be around $5.0m. I assume based on AGM figures (24 Nov 09) and unit price changes since then that max performance bonus that could be expected would be $100-200k. After the contribution to charitable donations of around $500k, Cash Profit Before Tax would be $9.5m. Tax on this would be $2.85m leaving CPAT of $6.65m or 26cps.
In the financial statements, the CPBT is adjusted for a number of non cash items to give the NPAT.
HHL seems to use the CPAT to decide on the level of dividend (except for last dividend where they dipped into reserves).
On this basis, my expectation for their interim dividend this year is in the range of 22-24cps.
Regards West Wind
Another company in the same space as Hunter Hall and Platinum, but a minnow in comparison, is Clime Investment Mangement (CIW). FUM is only $200m but up 25% in the last 6 months. This is the company that Roger Montgomery used to be associated with, but not anymore.
They have just released an interim profit upgrade which equates to around 5cps for the first half. If they can replicate that in the second half that would give eps of 10c. At the current price of $0.48 that gives a P/E of less than 5.
On that basis, I have added some.
Regards West Wind
Thanks for you insightful comments and suggestion West Wind. Kids are back to school next week so I’ll be able to get some serious analysis done and have added CIW to the list. As it happens I was looking at StockVal, part of Clime, last week. They appear to have a large team for $200M FUM.
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