Shaw initiates coverage on EQT Holdings with Buy: Regulatory and structural tailwinds offer future upside

Shaw and Partners has initiated coverage of midcap financial services provider EQT Holdings (ASX: EQT) with a Buy rating and a $37 target price, which represents 40% upside to the current price, up around 2% this afternoon.

Shaw is forecasting a full year FY22 dividend of 99.00 cents and earnings per share (EPS) of 123.90 cents.

To the uninitiated, EQT is an independent, specialist trustee - providing trustee and related services to a number of corporate and private clients operating in Australia, the UK and Ireland.

Risks and upside

As a leading player in all aspects of trusteeship, Shaw expects the company to benefit from both continued growth and the regulatory complexities associated with the domestic financial services sector.

Shaw also expects the company's trusted brands to help deliver market share gains and notes future potential upside from the UK and Ireland.

However, the broker warns investors that prolonged volatility in investment markets could negatively impact net flows for the company, especially as a portion of funds under management, administration and supervision (FUMAS) is linked to those markets.

Fundamentals

Aided by growth in funds under management, FUMAS and a bounce in equity markets, the company reported a 29% growth in interim net profit to $12.7m.

Highlights of the first half result to 31 December 2021 include:

• FUMAS up by 19%

• Revenue up 16% to $55.9m

• Funds under supervision rose 21.2%

• Superannuation revenue increased from $9.4m to $10.5m

• Interim dividend of 48 cents per share, up 9% from last interim

Commenting on the half year result, Mick O’Brien, the company’s managing director noted:

“We continue to benefit from demographic, regulatory and structural tailwinds… our balance sheet remains strong, with low gearing, a strong regulatory capital position and sufficient funding capacity should this be required.”

EQT share price: A six month snapshot.