CYBG PLC
Increase in Legacy PPI costs and a look at growth catalysts: CYBG PLC (ASX: CYB) is an independent banking group incorporating Clydesdale Bank, Yorkshire Bank, Virgin Money and digital banking platform B. The market capitalisation of CYBG stood at A$3.21 billion as on 17th September 2019. The company is expecting to increase its provisions for legacy PPI costs by between £300 million to £450 million. This happened primarily because of unprecedented volume of PPI Information Requests received during August 2019 in advance of the PPI complaint deadline of August 29, 2019 and in line with rest of the industry.
Financial Highlights for 1H19: CYB reported a decrease in underlying PBT (on pro forma basis) of 5% YoY to £286 million in 1H FY 2019 due to the anticipated increase in impairments. CYBreported underlying Return on Tangible Equity (RoTE) of 10.4%. The following table provides key financial numbers of CYBG and is important for the investors:
Financial Performance (Source: Company Reports)
Good Customer Growth: CYB witnessed customer lending growth of 2.4% to £72.7 billion mainly due to disciplined mortgage balance growth of 2.5% to £60.5 billion, SME growth of 1.1% to £7.6 billion and unsecured balances which were up by 4.2% to £4.5 billion with good growth from Virgin Atlantic credit cards.Customer deposits were up by 1.2% to £61.7 billion with an increase in relationship savings balances as they optimise mix.
Stock Performance:On the stock’s performance front, CYB’s stock has produced the returns of -9.68% and -32.73% in the last one and three months, respectively. Currently, the stock is trading near its 52-week low of A$1.930. Hence, in view of aforesaid parameters and current trading levels, we have a “Buy” rating on the stock at the current market price of A$2.280 per share, up 1.786% on 17th September 2019.
Empired Limited
Change of Director’s Interest:Empired Limited (ASX: EPD) is an IT Services provider with a broad range of capabilities targeted at delivering enterprise IT solutions that improve efficiency, productivity and competitive advantage for its clients. It has a market capitalisation of A$45.58 million as on 17th September 2019. On 30th August 2019, Mr Russell Baskerville, who has direct and indirect interest in the company, disposed 1,124,946 performance rights. After disposing off the performance rights, he has 9,088,983 ordinary shares and 1,561,600 performance rights.
On-Market Share Buy Back: The company has announced to undertake an on-market share buy-back of up to a maximum of 15,269,298 shares (being 10% of smallest number at any time during the span of last 12 months of the fully paid ordinary shares on issue)over the period of 12 months commencing from 17 July 2019. According to the company, it is an effective method of returning capital to shareholders where Empired’s shares are trading at a significant discount to its intrinsic value. In the release, it was stated that the company expects the buy-back to be EPS positive.
Performance Highlights for FY19: The company reported a revenue of $176 million up by 1% YoY. Australian revenue was flat at $116 million and New Zealand revenues were up by 3% YoY to $61 million. 63% of the revenue was generated through multi-year contracts.In FY19, the company secured a $12 million+ contract with Department of Internal Affairs NZ. It was also mentioned that Cohesion SaaS users grew by 65% to 11,500 users.
Financial Performance (Source: Company Reports)
Outlook for FY20:Empired Limited expects a revenue growth in FY20. The company has recently secured several new recurring managed services contracts plus there was a number of increases to existing managed services contracts.These are expected to commence revenue generation in the first quarter of FY20. EPD has booked record fourth quarter sales orders, up 10% PCP. This combined with a building work-book provides a strong platform as the company enters FY20.
Stock Performance:On the stock’s performance front, it produced returns of 7.55% and 5.56% in the last one and three months, respectively. Currently, the stock is trading near the 52-week low levels of A$0.235. Hence, in view of aforesaid parameters and current trading levels, we have a “Speculative Buy” recommendation on the stock at the current market price of A$0.270 per share, down 5.263% on September 17, 2019.
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