The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Glenmore Asset Management portfolio manager Robert Gregory explains why he loves two particular ASX shares at the moment.

Biggest convictions

The Motley Fool: What are your two biggest holdings?

Rober Gregory: So the two biggest holdings now would be MA Financial Group Ltd (ASX: MAF) and Stanmore Resources Ltd (ASX: SMR). 

Firstly on Stanmore. That's a company that I've followed for a long period of time. Funnily enough, the current management chairman of Bowen Coking Coal Ltd (ASX: BCB), Nick Jorss, actually used to be heavily involved with Stanmore.

Stanmore is a company I've known for a long time. Back in about October last year, they announced the transformational acquisition where they bought two coal assets off BHP Group Ltd (ASX: BHP). The two assets, South Walker Creek and Poitrel, they [are] both coking coal mines. BHP [were] going through a process of exiting certain coal assets and these two came up for sale. Stanmore acquired them at what I felt was a quite opportunistic price at around US$1.2 billion.

So what they did is to transform Stanmore into a small cap coal producer with assets of reasonable quality and suddenly vaulted them into a completely different investment proposition. 

South Walker Creek has a mine life of in excess of 25 years capacity of 6.3 million tons per annum. Poitrel, a bit smaller, 4.3 million tons per annum, [a] shorter mine life around 10 years, but still quite substantial.

The really positive part of these assets is actually where they sit on the cost curve. So South Walker Creek would be in the first quartile, Poitrel would be somewhere in the range between first and second. So what that means is that even obviously right now they're benefiting greatly from favourable coal prices but, even in periods of much weaker coal prices, we still believe that those mines will make money.

That's a really positive thing to think about for the future years. So post that deal, they will have debt of around $700 to $800 million, but we believe that will be amortised quite quickly over the six to 12 months, just coming from the very strong cash generation from those two mines.

It's worth pointing out that even though the deal was actually announced back in November last year, it was quite a protracted settlement. So Stanmore actually only took ownership and gained access to the cash flows on the 3rd of May this year. So there's been quite a period of months of waiting to see whether the coking coal price would stay robust once Stanmore took ownership but, increasingly, it has stayed at very healthy levels. So we're now in a situation where Stanmore is generating very significant free cash flow.

I really would stress that you shouldn't be looking at the valuation based on the current coal price because it's extremely high and it's not realistically going to stay at these levels. But for what it's worth, at current coal prices, it's trading on an [enterprise value] EV to [earnings before interest, tax, depreciation and amortisation] EBITDA of around 1.3 times.

At a long term hard coking coal price of around $150, $160 per ton, we have the EV to EBITDA around five times. So that the valuation stacks up, there's going to be good amortisation over the next 12 months.

The other interesting thing with Stanmore is that now that it's the new owner of Poitrel, is that there's quite a bit of speculation that the next coal asset BHP will sell is Daunia. And if that does proceed, Stanmore is very well-placed to be the bidder that can bid the most for Daunia, on the basis that Daunia is adjacent to Poitrel. They certainly have the most scope for synergies versus other bidders.

So there's probably going to be more. South32 Ltd (ASX: S32) [is] talking about selling some coal assets. There's going to be some more coal assets to be sold, so that's something to watch.

At the moment, for the assets Stanmore has, it's quite an attractive price.

MF: And why do you like MA Financial?

RG: So that's a financial services company. It has operations in funds management, corporate advisory equity, capital markets, and more recently it bought the business of Finsure off BNK Banking Corporation Ltd (ASX: BBC) for $145 million back in December last year.

It listed in early 2017 and, in fact, the Glenmore Fund's actually been invested in the stock pretty much ever since [initial public offering] IPO and it's really generated a really strong track record of delivering [earnings per share] EPS growth. I think management's very good.

They started off mainly as a corporate advisory and corporate recovery-type business with a small asset management business, but they correctly identified that asset management is a high-quality earning stream. So they've expanded quite aggressively into that part of the business since that 2017 period. 

We're now at the stage where the asset management business is by far the dominant earnings contributor at around 70% of group EBITDA. 

Whilst its asset management… it's not really like a Magellan Financial Group Ltd (ASX: MFG) or Pinnacle Investment Management Group Ltd (ASX: PNI) funds management business. It's more sort of niche products, such as real estate credit, hospitality funds, some venture capital, bit of private equity. It does have some equities, but a lot of the products it creates [are] quite niche products, designed specifically for high-net wealth investors.

And because they're quite niche in nature… the fee pressure is not as fierce as it is for say, more mature types of categories, such as long-only Aussie equities, for example.

So the fee structure is quite favourable and they've now got assets under management of about $7 billion. And I think there's a very significant performance fee capability from that $7 billion. I think even at this point, it's probably undervalued by the market, that performance fee capability or potential.

At the recent AGM, they called out their credit funds as getting the majority of their recent inflows, just due the defensive nature of these products and also the current equity market volatility. But generally speaking, all the various products they have in the asset management business are performing well. 

Corporate advisory and equities, that's doing well. That's probably a bit lower growth than the asset management business, but still generates very good cash flow and it provides a lot of good ideas, I think for their asset management business, in terms of where they can spot opportunities to add value for the client base.

Just on Finsure: So that's a business that they acquired last year for $145 million. It was founded in 2011 and provides a range of services to mortgage brokers based off its proprietary tech platform called Infinity. Infinity is essentially a platform that lets brokers select original process mortgages and other types of loans. Currently, [it] has about 12% market share, which has grown quite steadily over the last five years.

One favourable industry tailwind that Finsure has, is just that our mortgage brokers continue to win market share whilst the major big four banks are losing shares. So that should help their earnings. I think that the Infinity platform is very solid.

Lastly, MA Financial has its own lending division, including now owning a 100% of MKM, and I think some of the data and insights they get from owning Finsure are likely to be quite helpful in terms of tailoring certain products and for their own lending business. There's synergies for the lending business medium-term. 

[It] recently affirmed guidance for CY22 of 10% to 20% EPS growth. The valuation is still quite attractive at [price to earnings ratio] P/E about 16, 17 times.

MF: Yes, I was going to say the share price has dropped a bit this year, so is it a reasonably attractive entry point at the moment?

RG: Yeah, I think it is. 

I think some of the stock price declines come from just a general de-rating, the market, some of it from sell-off in financial services stocks.

I think [with] the asset management business performing very well. I suspect some investors may have concerns around Finsure just being vulnerable to weaker mortgage, home loan activity. That's a reasonable concern just given where the Australian home loan market is tracking right now with raising higher rates.

Realistically, that's probably produced a slightly softer earnings outlook for Finsure over the next 12 to 18 months, but I don't think it takes anything away from the medium-term opportunity from Finsure, which is still a very good business growing in a very big market, being the Aussie home loan market.

MF: What are the two best buys you're seeing at the moment?

RG: Well, look, to be honest, they're actually the two best buys.

The post 2 ASX shares I have supreme confidence in: fund manager appeared first on The Motley Fool Australia.

The shares finished the session at $8.84 on Thursday afternoon, up 4.62%.

Let's look at what played into the MA Financial share price today.

What did MA Financial tell investors?

In its release today, MA Financial told ASX investors it had received strong support for its capital raise of $100 million towards the acquisition of BNK Banking Corp Ltd (ASX: BBC) subsidiary Finsure.

The takeover provides MA Financial lenders with access to a network of 2,000 mortgage brokers and 4,800 loan products.

The company will issue 12.9 million new shares as part of an institutional share placement at $7.75 per share. This provides MA Financial investors with an 8.3% discount on the last closing share price of $8.45 before the trading halt.

The company is also offering a share purchase plan for eligible retail shareholders to purchase up to $30,000 worth of shares.

Commenting on the announcement, joint CEOs Chris Wyke and Julian Biggins said:

We are extremely pleased with the level of interest shown in the Institutional Placement and we thank our existing shareholders for their continued support and we also welcome a number of new institutional investors.

What else did they announce?

MA Financial also had some other news today. The company has signed a contract to buy the Hotel Brunswick in Brunswick Heads, New South Wales for $68 million.

The property, located 25 minutes north of Byron Bay, will be acquired by an investment fund overseen by MA Hotel Management.

Settlement on the hotel is expected to take place in March 2022.

MA Financial share price snapshot

The MA Financial share price has surged nearly 78% in the past 12 months. The value of the company's shares has dropped by 2% in the past month, but have recovered more than 7% in the past week.

The financial services giant has a market capitalisation of about $1.4 billion.

The post MA Financial (ASX:MAF) shares resume trading and leap higher. Here's why appeared first on The Motley Fool Australia.

Shares in the company are currently swapping hands at $1.22 apiece, up 17.87%, at the time of writing.

Let's take a look at what BNK Banking Corporation announced today.

Why is the share price surging?

BNK has agreed to sell 100% of its subsidiary Finsure to MA Financial Group Ltd (ASX: MAF) for roughly $151.6 million.

The sale price represents a 66% premium to BNK's market capitalisation before it announced it was undertaking a strategic review in September.

The ongoing review, due to be completed in early 2022, aims to improve value for BNK shareholders. The sale of Finsure is one of its outcomes.

Finsure is a leading Australian mortgage aggregator with a lending portfolio of $60.8 billion, focused on the home lending market.

Earlier today, MA Financial confirmed it had entered into a binding agreement with BNK to acquire its mortgage broker network.

The acquisition is expected to take place in the first half of 2022 and is dependent on regulatory approval.

Management commentary

Commenting on the news impacting the BNK Banking share price, chairman Don Koch said:

After a detailed assessment, the Board believes the sale of Finsure to MAF represents a compelling outcome for all BNK stakeholders, including shareholders, our people and customers.

The sale price of $151.6 million cash is an attractive valuation and will deliver significant value to BNK shareholders.

The sale price represents a 66% premium to the undisturbed market capitalisation of the group prior to announcement of the strategic review on 21 September 2021.

While Finsure has been growing strongly, the opportunity to be part of MAF, a larger and more diversified financial services group, will accelerate Finsure's ability to grow its presence in the Australian financial services market.

BNK Banking share price snap shot

Today's news coincides with another surge in the BNK Banking share price. It's up more than 74% in the past 12 months.

The company's shares have surged 22% in the last month alone and gained 18% in the past week.

The company has a market capitalisation of nearly $141 million, based on its current share price.

The post Here's why the BNK Banking (ASX:BBC) share price is surging 18% today appeared first on The Motley Fool Australia.

The company is a digital diversified financial services company with two key operating divisions in banking and broking aggregation. 

What did the company announce?

BNK Banking Corporation had growth in every business unit which delivered a statutory net profit after tax of $5.3 million, up 47.3% on the prior corresponding period (pcp). This represents a significant increase on the prior year on a statutory and pro-forma basis.

Earnings per share (EPS) was up 19% year-on-year (YoY) to 6.14 cents per share. 

Revenue from operations was up 53.8% to $315.59 million compared to $205.23 million in the prior corresponding period.

Additionally, the company delivered strong growth in its total loan book up 18% YoY to $48.1 billion. BNK Banking on balance sheet loans increased 33% YoY to $285 million. 

BNK Banking's aggregation division, operating as Finsure, had record settlement volumes of $15.6 billion in FY20 processed through its platform. It had a record month in June 2020 of $1.7 billion resulting in a run rate of over $18 billion going into FY21.

Net interest margin came in at 1.61% which is down from 1.95% in the prior corresponding period.

The capital adequacy ratio was 21.22% and deposit growth was up 20% YoY to $346 million.

Management comments

BNK Banking's Interim CEO, Don Koch said:

BNK is pleased to have delivered a sound result for FY20 in light of the impact of COVID-19 on the broader economy in FY20, underpinned by $16.1 billion of settlements across the year. FY20 represented the first full year of the merged group and the net profit of $5.3 million represents a significant increase on the prior year on a statutory and proforma basis.

He added:

Credit quality continues to be sound with the bank incurring nil loan losses in FY20, whilst credit losses provisions increased to 26 basis points reflecting prudent risk management, whilst the 5% of the bank's loans on repayment deferral arrangements is half of that experienced by the industry.

Outlook

BNK Banking Corporation is well-positioned for further growth in FY21 despite economic uncertainty. Additionally, the digital bank is focused on building stronger momentum across each of the businesses with continued investment in technology and scalability, whilst managing costs effectively.

The company says the completion of a capital placement of $7 million in February 2020 and the recent approval of a Tier 2 hybrid equity instrument, sets the bank up for strong growth targets in FY21.

At the time of writing, the BNK Banking share price is trading at 66 cents per share. The strong gains today have helped boost its market capitalisation to $63.65 million.

The post Why the BNK Banking share price jumped 14% today appeared first on The Motley Fool Australia.

BNK is a digital bank that offers home and personal loans, insurance, term deposits, everyday and saving accounts. 

What did BNK Banking announce?

BNK provided the market with a trading update for the months of April and May 2020. One of the highlights included growth in its total loan book to $47.3 billion, which represents a year-on-year (YoY) increase of 18%.

In addition, BNK's deposit growth was up 36% YoY to $363 million and transaction accounts grew to $109 million, which is up 100% YoY. The group has $108 million of cash and liquid holdings and a capital adequacy ratio of 20.97%. 

As a result of strong growth, BNK reported that it is operating profitably in the 2020 calendar year to date. 

Interim CEO Don Koch said:

BNK as a group has navigated the COVID disruption well, continuing to grow profitability over the period. Finsure has been a star out-performer achieving record volumes over the period and growing market share. The group remains well capitalised with a strong balance sheet and has made significant progress with diversification of funding over the period.

The BNK-owned Finsure is a nationwide network of independent mortgage brokers. The brokerage has reported strong settlement volumes of $1.35 and $1.45 billion in April and May 2020, respectively, up 32% YoY. Finsure's aggregation loan book of $44.7 billion is up 20% YOY. 

BNK also reports that requests for relief packages (which include loan payment deferrals) because of COVID-19 have remained very low, with only 2 requests received in June 2020.

About BNK Banking

BNK has two key operating divisions in banking and mortgage broking aggregation. The group seeks to become a challenger bank and is looking to grow its network and partner opportunities. 

It has operated as an APRA-regulated authorised deposit-taking institution (ADI) for over 38 years. As a result, customers are covered for deposits up to $250,000 by the Australian government deposit guarantee scheme. Additionally, it plans to offer a new range of products later this financial year and keep developing its digital platform. 

Finsure is the bank's aggregation division, which provides insights that assist BNK with product development. The group disclosed in its update it has 1,716 mortgage brokers that manage a loan book of $44.7 billion (as at 31 May 2020). 

The BNK Banking share price is currently trading for 64 cents, which is down 3.03% on this time last year but up 3.2% since the start of 2020. 

The post Why the BNK Banking share price has surged 37% today appeared first on The Motley Fool Australia.