It is very hard to see MFS underperform in the next few years. MFS is now a billion dollar company and with strong growth potential, it is only a matter of time before it gains entry into the ASX 200. This will no doubt see industry heavyweights start to appear on MFS’s share register and at the same time, see the sp head north as they scramble to accumulate shares (institutions now hold 28% of shares).
I think that MFS continues to be undervalued by the market, relative to its competitors. (MFS plans to launch a $600 million tourism-focused investment trust. To be launched by the first quarter next year, this offloading of all of its property and tourism assets will see MFS become a pure financial services company. I believe this reiterates the fact that MFS should be valued according to the likes of MacBank, Babcock and Allco Finance Group) Looking at FY07 forecast earnings, MacBank is on a P/E ratio of 14.3, Babcock 18.0 and Allco 17.1. In comparison, MFS has a P/E of 13.7. Please note that this is based on earnings estimates. Having said that, MFS’s P/E of 13.7 is calculated from the median EPS estimate of 31.5 cents. However, MFS has had a history of underpromising and overdelivering** and so I believe that FY07 EPS will be at least 35-40 cents (FY08 forecast earnings is 39.2 cents). So say for example, MFS earns 35 cents per share. That would equate to a P/E of 12.3, which just represents great value.
**For example, where analysts estimated that FY06 NPAT would come in at about $50-55 million, MFS announced a figure of $97.4 million!
Also, MFS should command a higher P/E because it is estimated that it will have the highest growth rate. So at present, MFS’s valuation is very attractive.
In giving guidance for 2007, MFS talked about ‘future transactions and its deal pipeline’. Hence, MFS is still attracted to being involved in future acquisitions which are likely to be packaged with other assets into listed funds/companies. Domestically, MFS is looking in the sub $200 million space, thereby avoiding competition from the likes of MacBank and Babcock. This strategy has worked in the past and has produced healthier returns on investments than say, the multi-billion dollar deals that MacBank is regularly involved in.
To my surprise and delight, MFS is establishing an overseas funds management subsidiary. This displays that MFS has a lot of confidence in their expertise and experience.
Price targets, broker recommendations, great past performance aside, I genuinely believe that MFS will continue to be a fantastic short term and long term trade/investment. I am a strong believer of the MFS story and suggest that those looking for a great investment should do their research on this up-and-coming financial company.
Cheers,
scsl