Mainstream Group Holdings Limited (ASX:MAI) CEO, Martin Smith talks 1H19 results, business initiatives, industry trends and 2H19 outlook.
Jessica Amir: Thanks for your company. I'm Jessica Amir for The Finance News Network, and with us today from Mainstream Group Holdings (ASX:MAI) is CEO Martin Smith. Hi Martin, and welcome back.
Martin Smith: Thanks Jessica.
Jessica Amir: Thanks for coming. So first up, just give us a quick introduction to the business.
Martin Smith: So Mainstream (ASX:MAI) is a full-service fund administrator. We operate in eight countries. We were formed in 2006 in Australia, and we've been listed on the ASX since October 2015. As a full-service fund administrator, we provide the back office services for a range of fund managers. We have approximately 300-odd clients.
Jessica Amir: Now to your first half 2019 results, can you take us through some highlights?
We've grown the business since we listed from circa $14 million in 2015 to north of $50 million, and we've seen that growth continue in the first half. We had revenue growth of 32 per cent. We also had EBITDA growth of 20 per cent.
Jessica Amir: Now can you tell us about what you do in the fund admin side of things, starting with full service?
Martin Smith: So the full service fund administration includes investor services, what we call investment administration, fund accounting, and for some clients performance and compliance.
Jessica Amir: And can you tell us about your private equity administration?
Martin Smith: We've opened a business in the US, providing private equity administration. It's quite unique, versus providing equity administration. It's typically for larger assets that are privately held. It can be private debt, it can be property, or it could be venture capital. The growth in the US in what they call private equity markets is phenomenal. There are circa 52 and a half thousand private equity funds in the US that are registered with the SEC, and to be registered with the SEC you need to have assets more than $150 million.
Last year in Australia as a comparison, there were 32 new private equity funds. In the US, there were three and a half thousand. So we've been investing in the US business. We hired a team in January 2018. Rather than do an acquisition, we did an organic growth investment, and we've got a team based both on the east and west coasts, and they're growing that business organically.
Jessica Amir: And another one of your business key areas is custodial services.
Martin Smith: So, we have about $150 billion of assets, and we've had a full-service custody license since 2012. But to offer that service you must have $10 million of regulatory capital on your balance sheet all the time. So we, in September 2018 we raised $9.5 million to allow us to meet our regulatory capital needs, and we've been offering that service to a range of our clients. And that business has grown in those four months to circa five billion of assets that are now in custody. We make money off what we call safekeeping of those assets, but we also make money by being able to aggregate the cash of multiple clients and we have at the moment about $350 million in our cash custody, and the banks offer us higher interest rates than any one manager could get on their own, and we make a margin on that.
Jessica Amir: Zooming out to the business level more broadly, what can you tell us about your finances?
Martin Smith: So the thing in the half year that we're excited about was while the markets corrected circa 10 per cent, our assets under administration actually grew six per cent. Three reasons for that. The first reason was we on-boarded a number of new clients. Our hedge fund business generally is defensive against a falling market, and our custodial business took on and then managers converted a number of their investments into cash, which allowed for protection against market correction.
Jessica Amir: And over the past six months, how has your funds under management grown, and can you touch on your share price as well?
Martin Smith: Our funds under administration reached $147 billion, as at 31 December. We had a net flows, or increase of $8.3 billion, which equates to six per cent, and the general market had fallen 10 per cent in that half year. So we're really pleased with the net result. It was actually a gross in-flow of $14 plus billion, and market correction took six billion.
On our share price, we did a capital raise in September last year at $0.70 cents. There's probably a little bit of an overreaction to the markets and our exposure to the markets. We're currently trading at circa $0.63 to $0.64 cents. We have two analyst research reports out there recommending a buy north of $0.80 cents.
Jessica Amir: Just a more general question now, Martin. What are the industry tailwinds, and what do you see as your major competitive advantage?
Martin Smith: Probably the first one is that more people are outsourcing these services because of operational compliance and cost of technology. That'd be the first tailwind. You're also seeing compulsory superannuation compounding the amount of assets and the in-flows into those assets, and we're definitely a beneficiary of that. And the markets that we only entered in the last couple of years, we now have a robust platform to offer to clients, and our brand is better-known in those markets so we're seeing a lot more inquiries.
Jessica Amir: Wonderful, and we look forward to watching you grow. Martin Smith, thank you so much.
Martin Smith: Thank you.