Are MFG & SGR still two titillating turnarounds?

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Question asked 07/07/2023

Are MFG & SGR still two titillating turnarounds?

1. MFG: Given today's FUM update and your comments in today's afternoon report, including about the update not meeting your expectations on FUM/performance fees: (A) Notwithstanding your comment that you are long and bullish MFG, do you advise a more cautious approach now to entering the stock if not already a holder - and at what levels? (B) Given current FUM trends, and that you state you were expecting FUM to be better, not worse, please elaborate on your view that: "Overall, the business is turning, though perhaps not as fast as we had hoped." 2. SGR: Given today's performance and your comments about concerns around their balance sheet and refinancing of debt, do you still think SGR provides attractive risk-reward and do you remain bullish toward SGR under $1.20?

Answer

Hi Darren,

A very topical question on 2 definite underperformers, so far in 2023 Star Entertainment (SGR) -37% and Magellan (MFG) -4.25% both of which have failed to reward loyal shareholders but the damage has been far worse over the last 18-months.

However at MM we believe a number of the markets “dogs” over the last year will play some catch up if/when yields top out but not all will turn, more than likely some will continue to slip lower and therein lies the challenge i.e. a change in the macro picture will not translate to all businesses.

Looking at the 2 stocks you’ve highlighted individually:

1 Magellan Financial Group (MFG) $8.60 – we still believe MFG represents good value as a turnaround play but further weakness below $8.50 wouldn’t surprise assuming the ASX remains under pressure however we still like the risk/reward from a value perspective into current weakness as we believe better performance will lead to an eventual improvement in FUM. We cover this in another question today.

2 Star Entertainment (SGR) $1.03 – the stock has experienced a tough week on further concerns around the strength of its balance sheet but as we said earlier in the week “We believe the next 20-30% move for SGR is on the upside which provides attractive risk/reward”. Our ideal entry is now fresh 2023 lows under $1.

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Star Entertainment (SGR)

LAST UPDATED 07/07/2023 12:07

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