Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- HMC Capital Ltd (HMCLF, Financial) achieved a record financial result in FY24, with total revenue up 42% to $189.5 million.
- Funds under management grew by 30% to $12.7 billion, demonstrating strong growth in the company's asset base.
- Over 50% of revenue came from high-quality recurring funds management income, which grew by 37% year on year.
- The operating margin increased to 68%, reflecting the highly profitable nature of the business.
- The company is well-capitalized with $1.4 billion of balance sheet liquidity and over $2.5 billion of investable dry powder across its funds management platform.
Negative Points
- Despite strong financial performance, there were unrealized fair value losses on investments in the second half of FY24.
- The capital solutions income was negative $0.7 million for FY24, indicating some volatility in this revenue stream.
- The company has not yet found the right opportunity for its global healthcare strategy, indicating potential delays in this area.
- There are concerns about potential conflicts of interest in co-investing in higher returning investments, although the company is working to mitigate these.
- The integration of recent acquisitions, such as Payton Capital, is still ongoing, which may pose operational challenges.
Q & A Highlights
Q: Morning, guys. Thanks for your time. Just couple from me. Team private credit vehicle and this doubling in FY25 from $1.6 million. Just wondering what you are seeing out there in terms of corporate and asset base private credit opportunities?
A: So the growth in (inaudible) assumption there comes from two things. One, the Payton business is off to a great start since we acquired it. We've written over $150 million of new loans and the pipeline there is strong. What we're seeing there is that business is underrepresented in the Queensland and New South Wales market. So we're pushing -- putting additional investment resources and origination resources into those markets to amplify through that growth trajectory. And on corporate and private credit, what we're seeing there is we've already got, I think, [5] deals that have been originated and that we're evaluating as potential seed assets for that business. We're going to run a merchant banking style model. We'll get our foot on some assets. We'll underwrite them off the balance sheet and then we'll syndicate them immediately down to institutional investors. So it's a nascent market. It's a market where contacts, relationships, the HMC network, the HMC flywheel will throw up deal flow, that will be unique and proprietary deal flow that we'll get to see as well as just general market velocity and growth as corporates look for more bespoke solutions, more creative solutions that are not necessarily available from the domestic banks. So we're very excited by the outlook for that business.
Q: Just in terms of capital solutions, I know Will pointed to tracking to $9 million this year, but it obviously was negative $0.7 million for last year, notwithstanding the Sigma fees. You're able to give any more color just in terms of what's driven that and kind of what the competition might be on that?
A: See, the easiest way to describe that is when we gave a bit of an update after the half year result, we said if you stop the clock and marked some of our listed balance sheet positions at that date, we're running at about $0.40 that ran ahead of that. After that update, the balance sheet position we were holding came back leading into June 30. That's what resulted in the $0.37 but you can assume that's come back in the new year. So we're already sitting on some very significant and healthy gains starting this year. So effective that $0.03 that we lost late last year, and the mark-to-market has actually dropped into this year. So we start this year with very good momentum in our capital solutions business and our balance sheet positions.
Q: Last one for me just in terms of the global health care strategy, I know you still exploring that kind of $2 billion. I think last week, you talked a few opportunities in (inaudible) vehicle. Just wondering how that's progressing and whether or not there's more or less opportunities on the horizon for that strategy?
A: We'll remain focused on that. We continue to have it under evaluation. When we find the right opportunity, we'll obviously pull the trigger. But at this point, we haven't found the right opportunity, we're probably seeing better deployment opportunities across other parts of our real estate platform right here, right now. But we are going to be super opportunistic and you can never write us off and we might come out of the blue and do something very big in this space. So we just see it as a very open area. We see it as lacking a global champion, but we'll be taking our time and our moment very carefully and very decisively.
Q: Good morning, David. Just some interested in going back to that corporate asset backed private credit and the merchant banking model. Will you ultimately co-invest in some of those higher returning investments over longer term period? Or do you intend to always sort of sell down those exposures once you sort of put your foot on them?
A: Where we like the return, we'll be open to co-investing. But obviously, we'll be very mindful of keeping the balance sheet in pristine shape as we have to this point. But we will be looking to opportunistically invest where it makes sense for the balance sheet.
Q: Okay, great. Thanks. And then when you do co-invest or not, is there any potential conflicts or how would you look to manage those if they came out?
A: HMC as I said earlier, in terms of our governance and our conflict process, has the most delay mindset on that, we want to be best practice. We want to be the very best in that area and we never want to get ourselves into a situation where we have a conflict. So as I said earlier, one of the big focus areas despite growth is being what I'm talking about on the call this morning since we acquired Payton, all been focused on is the risk department and legal department have been very focused on integrating it, integrating their systems, integrating our processes with what they do every day. Our governance processes are being rolled through Payton as we speak. So there won't be conflicts arising in the future. It's not something where we have any appetite for.
Q: Yeah, hi, good morning. David. You just touched on a good solid base for recurring earnings. Can you just give us a feel for what that will be including the contribution from Payton this year?
A: Well, we've been very clear that we've taken the same approach that we took this time last year around not providing guidance. Importantly for a business of our nature, we keep marching ahead and you can have a look on page 21 of the presentation or even earlier in the deck. We've generated earnings -- operating earnings, EPS growth of a compound level of 44% since we IPO'd with the rate environment as it stands and the outlook as it stands, we feel very, very good about the growth trajectory of maintaining that growth trajectory into '25 for our business. We've got multiple of different avenues for that to happen. But importantly, the reason we are more confident this year than we have been in previous years is we start with a recurring earnings base of well north of $0.30 a share. So therefore, that gives us a great start leading into this year in terms of continued to maintain the growth trajectory across the Group.
Q: Well, good morning. Congratulations on the result, and thanks for taking my questions. I mean, you've spoken about Payton a bit already, but would you mind talking to the acquisitions you've made over the past year and how those businesses are currently tracking to those initial expectations that you had when you acquired them, please?
A: So let's be clear. We have most of our growth in this Group is organic. The only significant acquisition we made last year is Payton that's tracking well. I'm extremely proud of the ability of this organization to mobilize quickly and to integrate. So we're making
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
