Mainstream Group Holdings (ASX:MAI) FY20 results & outlook


by Katrina Bullock

Mainstream Group Holdings Limited (ASX:MAI) CEO Martin Smith provides an update on the company's FY20 results, the impact of COVID-19, strategy and outlook.

Katrina Bullock:
Hello, and Katrina Bullock for the Finance News Network. And joining me from Mainstream Group is CEO Martin Smith. Martin, welcome back.

Martin Smith: Thanks, Katrina.

Katrina Bullock: Mainstream Group provides a range of services to the funds management industry, both here and overseas. Could you tell us more?

Martin Smith: Yeah. So Mainstream is a full service fund administrator. We basically do the back office and middle office for fund managers. We do a range of services, including investor services, unit pricing, accounting, performance, and compliance. We do it for three different types of funds, what are traditionally known loan-only funds, alternative funds, which are often known as hedge funds, and more recently we've developed an offering in private equity funds starting in the US. And we've just recently brought that to Asia-Pacific.

Katrina Bullock: Thanks, Martin. Now, before we talk about your FY '20 results, what impact has COVID-19 and market conditions had on the business?

Martin Smith: We initially thought that it could be a major market event in March this year, March and April. But it actually transpired that a lot of people used it as an opportunity to launch new funds. And we saw probably our biggest quarter. We used it as an opportunity to seed funds. I think there's a lot of money that's been sitting on the sidelines in endowment funds and pension funds. And people use that as an opportunity to deploy that money. We had to move quite quickly to remote working with 270 people and an administration business. That's not a main feat. It was quite challenging for the first sort of two or three weeks, but fortunately we had quite a good workflow system and probably what would have taken us three years to develop, we had to develop in three weeks.

Katrina Bullock: Now to your FY '20 results, what were the financial highlights?

Martin Smith: So the revenue grew by 11% and the EBITDA by 24%. The second half was particularly good. It was significantly up on the first half considering the macro situation. We're really pleased with that. We also secured a major contract with a fund manager called Pendal. We won a five, plus five year contract. We're seeing a big trend from the big banks off the back of the Royal Commission, exiting wealth or outsourcing their world services and were a beneficiary of that. So it was really pleasing and that contract doesn't go live till February next year, but it really sets us up well for FY '21.

Katrina Bullock: And what about the operational highlights? You mentioned the fact that in three weeks, you managed to transition to working from home. Something that often takes many years, what else happened during the period?

Martin Smith: So we launched a product for Magellan called the Quoted Fund, Airlie Australian Share Fund, which is an unlisted fund, was listed on the ASX as if it was a listed company like BHP. What that means for investors is they don't need to create or fill in long paper-based application forms to buy and sell in that fund. They basically just need to have a broker account and the ticket code and we have a significant pipeline for that. We really think this is an Uber moment for the industry. We do hope our competitors take this up. We certainly have a first mover advantage being the first person to have the capability to administer this product and be approved by the ASX. So we're really pleased with that. We probably have six other funds currently in transition to that solution. And we have a pipeline of more than 40 different managers. So we're interested in that capability.

Katrina Bullock: Now turning to new trends in fund management and your finances, what are you seeing happening in the industry at the moment?

Martin Smith: Well, it's definitely a lot more regulation occurring in the industry, particularly around anti-money laundering legislation and privacy. So there's a need for our systems to adapt and be enhanced to cater for those needs. We're well placed, because we're sharing the cost of that investment across 350 clients, we're well placed to provide that solution at an economic price to managers. That's the first thing.

The other thing we're seeing is demand from investors for more digital services. So that means enhanced web services, ability to transact electronically to basically remove the paper from the system. The Quoted Funds that we talked about before is an example of that. But some other things we're doing is we've built a new investor onboarding process, where you can actually sign up to a fund electronically. We can screen you and validate you through various databases to meet the AML needs. And we've also put in a secure transacting platform. So if you're an existing investor, you can do your maintenance or your transacting online in a secure, controlled way. We're very focused on security aspect in this digital age, but it's just about improving the experience for the investor, the timeliness, the accessibility to the data that allows them to manage their affairs.

Katrina Bullock: And last question, Martin, before we let you go. Any final words for investors?

Martin Smith: Yes. So the outlook for Mainstream, considering COVID, is looking good. We have guidance in the market of 65 million in revenue, which is circa 20% increase on this year. We also have an uplift to 11 and a half million in EBITDA. We've found that we've been quite resilient. We're providing what would be an essential service and there's disruption happening in the market. So the outlook for the business being listed certainly helps. It gives investors and managers transparency. We're executing on this digital investment that we've been doing for the last two years. And it's paying dividends. We've been managing a combination of our working capital, our debt, and our dividends. We're able to restore our dividends in September, and we're looking at balancing those three leaders with the view that we'll be able to pay a 3% dividend going forward, balancing that to our working capital and our debt requirements.

Katrina Bullock: Martin Smith, thank you so much for your time today and the update and congratulations again on progress and the resilience the company's shown throughout the COVID-19 period.

Martin Smith: Thanks, Katrina.