The new financial year is a time when many investors will be reviewing their share portfolios and rightly asking themselves what companies may produce the best returns in the years ahead.
Sell side brokers will also be plugging their best picks for the new financial year as the more investors trade the more brokerage fees generated for these stockbrokers.
Right on cue stockbroker and sell side research business Bell Potter has stepped up to name 18 stocks it thinks investors should buy in FY 2018. So let's take a look at its three top financials picks for the financial year ahead.
Challenger Group Ltd (ASX: CGF) is the fixed term and lifetime annuities provider that is growing sales at strong rates as more baby boomers enter retirement and look to secure guaranteed income streams.
Surprisingly, Challenger has little competition in this space and is widening its distribution network via partnerships in Japan and with the likes of AMP Limited (ASX: AMP) and Colonial First State as the wealth management arm of the Commonwealth Bank of Australia (ASX: CBA).
Bell Potter also flags the regulatory support of the Federal Government's "MyRetirement" reforms as a structural tailwind and has a $14.70 "share price target" on Challenger. I agree Challenger is a market leader that looks well positioned to grow and as such think its shares offer reasonable value at $13.30 today.
BT Investment Management Ltd (ASX: BTT) is the international fund manager that has several key metrics tracking in the right direction including fund inflows, bullish markets, and investment performance.
Bell Potter is forecasting "double digit" earnings per share growth and has a $15 "share price target" on BT stating that it "remains firmly within its growth phase". In my opinion BT is one of the better financials on the ASX, but my primary concerns remain around management of its operational cost base, return on equity, and profitability. For those reasons I'm not a buyer of BT shares.
Janus Henderson Group (ASX: JHG) has come about as a result of the merger of US-based Janus Group and UK-based international equities manager Henderson Group. As such it is something of a rare opportunity for ASX investors in being a high-quality asset manager across the international fixed income, equities, and alternative asset space.
Bell Potter is forecasting "double digit" earnings per share growth for calendar years 2018 and 2019 based partly on post-merger cost savings, with a bullish $57.50 "share price target" on JHG. Experience suggests the cost savings may be easier to deliver on paper than in practice and the "double digit" growth forecasts presumably are factoring in a strong 18 months ahead for capital markets. As such, while I like JHG as a business, I would be hesitant about paying too much for the shares given today's already ebullient valuation of $42.96.
