Stock Recommendation: MFS

By Imran Valibhoy, Equities Analyst at wise-owl.com, an Australian investment research house.

Tuesday 30th January 2007

It is not often we come across an emerging investment bank which has the potential to become a leading player in the finance industry. However, MFS Limited (MFS) is showing all the characteristics of becoming one of these.

MFS is a diversified investment company in the funds management and financial services sector. The company owns the MFS Funds Management Group, the HFA Funds Management Group and a range of domestic tourism related assets including the Mount Hotham ski resort, the Falls Creek ski resort and Saville Hotel Group.

It has been a busy year for MFS with numerous takeovers which have seen the company divesting their asset base further. The amount of fee paying assets under management is currently standing at $3.87 billion.

Assets under management is expected to grow to $5 billion this financial year with numerous takeovers planned. The largest target is S8 Limited (SEL) for around $700 million.

With the acquisition of Saville Hotel Group, MFS is now the second largest accommodation management group in Australia and will further benefit from the integration of S8 Limited.

MFS have also purchased the Northplan financial advisory firm which has NZ$670m funds under management and advice. The company also recently struck up an agreement with Sunland Group with regards to their Sunkids and Sunleisure operations. On the property front, MFS have taken a 30% stake in Gersh Investment Partners Ltd.

The more assets MFS have under management, the more fees they are able to extract which increases revenue. We expect assets under management and the number of investors to increase which should see revenue increase even further.

MFS reported revenue of $327.7m to the 30th June 3006 which was up 131% from 2005’s revenue of $141.2m. The company is due to release its eagerly anticipated half year results on Thursday, February 15th which should set the tone for the rest of the year.

Going forward, MFS are looking to diversify even further with growth streams such as environmental infrastructure and overseas investments. They are also looking to increase their presence in the Sydney and Melbourne markets as well as New Zealand.

The current acquisitions should guarantee further impressive growth in revenues which should lead the market to a re-rating of the stock which is currently trading at cheap multiples relative to its peers.

Wise-owl.com currently has a buy recommendation on MFS Limited

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