Eight stocks in the Financial Sector

Medibank Private Ltd

MPL Details
Underperformance of brand and a slowing market in FY16: Medibank Private Ltd (ASX: MPL) reported a 46.6% growth in the group NPAT to $417.6 million in FY16 primarily due to the improved operating profit of the Health Insurance business.
 

FY 16 Financial Performance (Source: Company Reports)

 
On the other hand, MPL health insurance has paid $5.1 billion on behalf of the customers and some challenges remain with the value MPL offers to the customers. Moreover, MPL’s profit growth is impacted on lower than expected hospital utilization rates across the industry. The revenue growth has remained soft due to underperformance of the Medibank brand and a slowing market. The group may announce restructuring charges at upcoming investor briefings in November or along with 1H results early next year. Meanwhile, MPL stock fell 14.5% in the last three months (as of October 13, 2016), and we believe the pressure to continue. Based on the foregoing, we give an “Expensive” recommendation on the stock at the current price of $2.57
 

MPL Daily Chart (Source: Thomson Reuters) 

Insurance Australia Group Ltd

IAG Details
Buy Back efforts to support the stock momentum: Insurance Australia Group Ltd (ASX: IAG) completed its off-market share buyback which was well received by shareholders and came to A$314 million (i.e., above its original planned value as announced in August, and conducted at A$4.91 per share). The group’s insurance profit grew 6.8% year on year (yoy) to $1.18 billion in FY16. Underlying margin and reported margins improved by 90 bps and 360 bps, respectively, for FY16 against FY15. Moreover, IAG’s reported margin guidance for FY17 is 12.5-14.5% but GWP would be relatively flat. We maintain a “Buy” recommendation on the stock at the current price of $5.56
 

IAG Daily Chart (Source: Thomson Reuters) 

Suncorp Group Ltd

SUN Details
Restructuring efforts coupled with the group’s customer focus would drive the stock: Suncorp Group Ltd (ASX: SUN) has reported that its wholly-owned subsidiary, AAI Limited has successfully priced an issue of A$330 million (aggregate principal amount) floating rate subordinated notes in an offering to institutional and wholesale investors. SUN earlier reported NPAT of $1,038 million in FY 16 as compared to $1,133 million. This is due to the lower returns from investment markets and a reduction in reserve releases. The underlying profit included the positive lapse and claims experience of $21 million. Additionally, the impact of natural hazards was $237 million lower than FY 15. On the other hand, SUN has created a $55 million provision for restructure or $39 million after tax which would generate at least $80 million of recurring benefits in the coming year. Additionally, Suncorp’s key targets in the medium term are broadening of customer relationships, maintaining a flat cost base in FY17 and FY18, underlying ITR of at least 12% and a dividend payout ratio of 60% to 80% of cash earnings. Trading at decent dividend yield and P/E, we give a “Buy” recommendation on the stock at the current price of $12.35 
 

SUN Daily Chart (Source: Thomson Reuters) 

Cover-More Group Ltd

CVO Details
Boosting capital position: Cover-More Group Ltd (ASX: CVO) recently completed the issue and allotment of 51, 388,553 shares under its institutional entitlement offer. The group earlier announced for the institutional non-renounceable entitlement offer to partially fund the acquisition of Travelex Insurance Services Inc. for US$105.0 million, in order to raise $73.3 million. Under the earlier disclosure, the Retail Entitlement Offer opened on October 04, 2016 and would close on October 17, 2016. Meanwhile, CVO stock rose 12.18% in the last three months (as of October 13, 2016). We maintain a “Buy” recommendation on the stock at the current price of $1.38
 

CVO Daily Chart (Source: Thomson Reuters)

Steadfast Group Ltd

SDF Details
Resilient business model for FY 17: Steadfast Group Ltd (ASX: SDF) has scheduled its AGM on October 27, 2016. The group earlier reported a 45% growt1h in the underlying NPATA to $82.0m in FY 16 while the underlying cash EPS grew 12% to 11.00 cps. The statutory NPATA grew 67% to $95.0m. FY16 includes the full impact of recent acquisitions including Calliden and QBE agencies. Moreover, Gross Written Premium (GWP) grew 4.2% to $4.5 billion in FY 16 as compared to FY 15. SDF has the largest general insurance broker network in Australia and New Zealand with 27% market share in Australia.
 

FY 16 Financial Performance (Source: Company Reports)
 
Additionally, for the FY 17 the underlying NPATA is expected to be in the range of $85m-$90m and the key assumptions include the flat market conditions and no material acquisitions. Therefore, the FY17 guidance reflects a resilient business model. Meanwhile, SDF stock rose 29.94% in the last six months (as of October 13, 2016), and we give a “Hold” recommendation on the stock at the current price of  $2.36
 

SDF Daily Chart (Source: Thomson Reuters) 

Link Administration Holdings Ltd

LNK Details
Impact from ACCC’s concerns over acquisition of Pillar: Link Administration Holdings Ltd (ASX: LNK) has been impacted by the recent release of issues raised by the Australian Competition and Consumer Commission (ACCC) pointing its concerns over the proposed acquisition of the Superannuation Administration Corporation (trading as Pillar) by LNK. ACCC pointed out that the acquisition could potentially lead to a decrease in competition in the supply of superannuation administration services by establishing Link’s dominant position. LNK is reviewing the issues and is preparing to address the same. The group earlier reported a 32% increase in the revenue to $775.9 million in FY 16 over FY15 and 3% above the FY16 Prospectus forecast.
 

FY 16 Financial Performance (Source: Company Reports)
 
Meanwhile, LNK stock has fallen 8.1% in the last five days (as of October 13, 2016) while trading at unreasonable P/E. Moreover, PEP shareholders and ICG shareholders have sold all their shares of LNK. We give an “Expensive” recommendation on the stock at the current price of $ 7.60
 

LNK Daily Chart (Source: Thomson Reuters) 

ZipMoney Ltd

ZML Details
Acquired Pocketbook: ZipMoney Ltd (ASX: ZML) has finished acquisition of Pocketbook Holdings Pty Ltd for $6.0 million plus a deferred consideration of up to $1.5 million. The acquisition would strengthen ZML’s proprietary credit and fraud decision technology. Moreover, ZML reported a 1296% growth in the loan book (receivables) to $40.7 million in FY 16, so the revenues grew 976% to $4.3 million.
 

FY16 Results (Source: Company Reports)
 
As a result, ZML stock rose 100% in the six months (as of October 13, 2016). We give a “Hold” recommendation on the stock at the current price of $0.83
 

ZML Daily Chart (Source: Thomson Reuters) 

Onevue Holdings Ltd

OVH Details
Acquisition of Diversa: Onevue Holdings Ltd (ASX: OVH) has recently announced some board changes and has acquired 100% of the ordinary shares in Diversa after the federal court of Australia has approved the scheme of arrangement. OVH has issued 70,179,753 new shares and paid $2.46 million to Diversa shareholders. With the acquisition of Diversa, OVH has become number one in outsourced retail superannuation trustee and outsource unit registry services. We give a “Speculative Buy” recommendation on the stock at the current price of $ 0.63
 

OVH Daily Chart (Source: Thomson Reuters)

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