Milton Corporation Limited (ASX:MLT), a AUD$2.94B mid-cap, is a capital market firm operating in an industry, which now face the choice of either being disintermediated or proactively disrupting their own business models to thrive in the future. Many aspects of banking and capital markets are being attacked by new competitors, whose key advantage is a leaner and technology-enabled operating model, allowing them to scale at a faster rate and meet changing consumer needs. Financial services analysts are forecasting for the entire industry, a positive double-digit growth of 15.83% in the upcoming year, and a massive growth of 33.51% over the next couple of years. However this rate still came in below the growth rate of the Australian stock market as a whole. Is the capital markets industry an attractive sector-play right now? In this article, I’ll take you through the sector growth expectations, as well as evaluate whether MLT is lagging or leading its competitors in the industry. See our latest analysis for MLT
What’s the catalyst for MLT’s sector growth?
The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the previous year, the industry endured negative growth of -7.60%, underperforming the Australian market growth of 562.28%. MLT leads the pack with its impressive earnings growth of -4.91% over the past year. This proven growth may make MLT a more expensive stock relative to its peers.
Is MLT and the sector relatively cheap?
The capital markets industry is trading at a PE ratio of 22x, higher than the rest of the Australian stock market PE of 16x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a lower 8.70% compared to the market’s 12.00%, which may be indicative of past headwinds. On the stock-level, MLT is trading at a PE ratio of 24x, which is relatively in-line with the average capital markets stock. In terms of returns, MLT generated 4.83% in the past year, which is 4 percent below the capital markets sector.
What this means for you:
Are you a shareholder? MLT recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders, and the stock is currently trading in-line with its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto MLT as part of your portfolio. However, if you’re relatively concentrated in capital markets, you may want to value MLT based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If MLT has been on your watchlist for a while, now may be the time to enter into the stock. If you like its proven ability to generate growth, you’ll be paying a fair value for the company, given that it is trading relatively in-line with its peers. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time. Before you make a decision on the stock, I suggest you take a look at other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.
For a deeper dive into Milton’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other financial stocks instead? Use our free playform to see my list of over 600 other financial companies trading on the market.
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