Significant volatility has arisen from the US tariffs on most goods from most countries. Goods from China going into the US now get a tariff of more than 100%! With that stock market backdrop, investment bank Macquarie has named some ASX financial shares as opportunities.
When the entire market experiences a rough patch, some sectors seem to experience more volatility than others. Depending on the business, ASX financial shares can be sold off more heavily. Meanwhile, businesses in defensive sectors with resilient profits may be able to ride through volatile times more easily.
Macquarie has named three stocks in the diversified financial space that merit attention – let's examine them.
AUB Group Ltd (ASX: AUB)
Its number one pick is insurance broker business AUB.
Macquarie noted that the company's underlying net profit after tax (UNPAT) guidance was reaffirmed in the FY25 half-year result, which was between $190 million and $200 million. This represents year-over-year growth of between 11% and 17% after absorbing the cost impact of approximately $12.8 million from the Tysers bonuses.
The investment bank is forecasting that AUB could achieve a compound annual growth rate (CAGR) of earnings per share (EPS) of around 10% between FY24 and FY27 before new acquisitions. Macquarie only includes announced acquisitions in its forecast earnings.
The broker suggested that if the ASX financial share delivers on its medium-term targets in FY27, Macquarie's operating profit (EBIT) forecasts will have a 10% upside. Around two-thirds of that upside is attributable to the international segment hitting its 32% target (compared to 24% in FY24).
The investment bank has an outperform rating on AUB shares and a price target of $35.45. That implies a possible rise of around 15%.
Pinnacle Investment Management Group Ltd (ASX: PNI)
Pinnacle is a business that specialises in investing in and helping fund managers. It's the second pick by Macquarie.
The broker said the earnings growth outlook is attractive, with Macquarie forecasting 28% EPS CAGR between FY24 and FY27. That compares to 31% EPS CAGR growth between FY16 and FY24. Macquarie said investments in new affiliates and strategies are "dampening leverage". As investments turn profitable, base margins are predicted to track back to 50% in the medium term and over 50% in the long term. In HY25, the base margin was around 40%.
The investment bank outlined some catalysts and drivers that could help the ASX financial share:
1) Organic performance supported by net flows, performance of markets and strategies, and operating leverage. 2) Investment in new accretive affiliates with Pinnacle. The group has ~$400m investment capacity. 3) Investor confidence in the macroeconomic outlook and equity market performance.
Macquarie has an outperform rating on Pinnacle shares, with a price target of $27.37, implying a possible rise of 67%.
GQG Partners Inc (ASX: GQG)
GQG is one of the largest fund managers on the ASX.
Macquarie forecasts that GQG's EPS could grow by 5% to 10% over the medium term.
The broker has an outperform rating on the ASX financial share and a price target of $2.90. That implies a possible 40% rise from its current level.
Explaining the reason for the bullish view, Macquarie gave multiple reasons:
1) Performance supports the outlook for flows. All four primary strategies have outperformed their benchmarks on 3-yr, 5-yr, and 10-yr bases. 2) Investor confidence in the macroeconomic outlook and equity markets. 3) Investments. GQG expanded its dividend payout ratio to 50-95% (85-95% prior), this change is to provide increased balance sheet flexibility. GQG payout ratio has been ~90% since 1H22.
