VGI Partners Limited

Company Overview: VGI Partners Limited (ASX: VGI) provides investment services to its clients. It is focused on providing 10-15% p.a. compounding returns with a view on the long-term investment horizon. The company is focused on global equities with a strategy of long and concentrated execution along with selective short selling. It looks to grow its AUM through the compounding of existing assets.

VGI Details

Decent Uptick in Revenues Driven by Increase in Portfolio Performance: The company reported decent performance during the H1FY21 period with increased client engagement and also hired senior executives to drive growth.

H1FY21 Results Overview:

VGI has recently declared its H1FY21 results, where it delivered an impressive performance with steady growth in FUM levels.

• FUM increased to $3.2 billion as of 30 June 2021, compared to $2.9 billion as of 30 June 2020 period.
• Normalised total revenue stood at $72.8 million during the period, compared to $22.4 million in the pcp. The growth in revenue was driven by an uptick in performance fees to $50.4 million in H1FY21, from a level of $0.1 million in H1FY20 on the back of strong portfolio performance.
• Normalised NPAT stood at $42.9 million during H1FY21, compared to $9.9 million in the previous corresponding period.
• The company declared interim dividends of 31 cents per share for the period and payable on 10 September 2021.

It ended the period with a cash position of $34.6 million as of 30 June 2021, with no debt on the balance sheet.

Cash Balance Trend (Source: Analysis by Kalkine Group)

Decent Portfolio Returns:

The company has delivered decent portfolio returns for the period 12 months to 30 June 2021.

• VGI Partners Master Fund gave a return of over 24.7%.
• VGI Partners Global Investments Ltd delivered returns of over 25.6%.
• VGI Partners Asian Investments Ltd has provided returns of over 15%.

Upgrades on Technological Front:

• VGI has continued to make upgrades to its CRM system by enabling content creation capabilities.
• It has partnered with Hazeltree in order to implement its cash and treasury management solution.
• The company’s trading capability has also been strengthened by the implementation of Enfusion, which will help in facilitating the end-to-end capture of the trade cycle.

Top 10 Shareholders: The top 10 shareholders together form around 78.77% of the total shareholding, while the top 4 constitute the maximum holding. Luciano (Robert Michael Paul) and Tynan (Douglas Hugh) are holding a maximum stake in the company at 58.83% and 15.36%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: The company reported EBITDA margin of 70.7% in FY20 compared to the industry median of 54.7%. Net margin improved to 45.2% in FY20, compared to 41.2% in FY19. ROE stood at 20.9% in FY20, compared to the industry median of 9.5%.

Growth Profile and Profitability Metrics (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risk factors:

• Financial Risks: The Group’s activities expose it to financial risks, which comprises of foreign currency fluctuation, interest rate, credit risk and liquidity risk.
• Macro Risk: The prevalence of macro events or global pandemics like the ongoing COVID-19 has the potential to upset the equity markets and thus impact the company’s performance.

Outlook: The company has reported an increase in earnings driven by the performance fees owing to strong portfolio performance during the year and expects to continue the momentum going forward. It has expanded its team with key strategic hires and plans to make additional hires as it looks for initiatives to support its clients. VGI has also invested in its technological capabilities in order to accelerate on its efforts to improve on client engagement.

Technical Overview:

The stock prices are broadly consolidating in the sideways trading range between AUD 6.11 and AUD 8.77. Prices are trying to reverse from the lower band of the sideways channel. Prices broke the downward sloping trend line by an upside and the prices are sustaining above the breakout point from the past two weeks. The momentum indicator, RSI (14-period) is hovering near to moderate levels at ~52, indicating indecision in the stock prices. Now the next immediate support levels are AUD 6.11 and AUD 5.80, while immediate resistance levels are AUD 8.12 and AUD 8.77.

Stock Recommendation: As per ASX, the stock of VGI is trading below its average 52-weeks’ levels of $5.800-$8.770. The stock of VGI gave a positive return of ~6.76% in the past three months and a negative return of ~11.13% in the past one year. On a TTM basis, the stock of VGI is trading at an EV/Sales multiple of 8.1x, lower than the industry average (Financials) of 9.8x. Considering the current trading levels & valuation on TTM basis, impressive financial performance, robust increase in profits & performance fees, strong portfolio performance, decent balance sheet and the key risk associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $6.94, up by 3.74% (as on 24 August 2021, 12:20 PM (GMT+10), Sydney, Eastern Australia).

VGI Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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