Macquarie has its eye on Metrics’ falling profit margin

afr.com:

Here’s what Macquarie’s small-cap analysts were talking to clients about on Thursday.

Metrics Credit Partners’s managing partner Andrew Lockhart. Jeremy Piper

Pinnacle Investment Management, the name behind fund managers such as Antipodes, Firetrail and Hyperion, reported a mixed set of results after the market close on Wednesday which saw its share price fall around 5 per cent to $9.9 on Thursday.

The investment manager had a forgettable FY23, seeing its net profit after tax increase marginally to $76.5 million, but its net inflows and funds under management fall short of expectations.

What caught the research house’s attention was not the headline figures but the performance of one of its key affiliates, non-bank lender Metrics Credit Partners. Analysts noted the Sydney boutique’s NPAT margin halved to 15 per cent over the past financial year despite 30 per cent revenue growth. Metrics’ funds under management similarly grew by 52.4 per cent.

Metrics net profit after tax compared to its net profit after tax margin. Macquarie Capital

They compared this with star affiliate Hyperion, whose NPAT margin increased to 57 per cent from 50 per cent while its revenue fell by 11 per cent. Sources pointed to a rise in expenses at Metrics, which has been investing in head count and building out its commercial and consumer finance product offerings.

Metrics revenue compared to growth versus the prior corresponding period. Macquarie Capital

Fund managers typically have superior operating leverage as they can grow revenues without increasing their cost base by bringing in more FUM and performance fees. Investors like to see NPAT margins increase as FUM increases. Diversification into other segments is good, provided earnings follow.

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