Company Overview: Euroz Limited (ASX: EZL) is mainly involved in providing stockbroking, investment, financial advisory, and funds management services to private, institutional, and corporate clients. Founded in the year 2000, EZL has transformed itself from a stockbroking business into a leading Western Australian financial advisory firm, supported by organic growth and successful acquisitions. The company is mainly focused on ASX listed resource, energy, and industrial companies with a market capitalisation in the range of $5 million and $5 billion.

EZL Details

Key Takeaways from FY21 Results: EZL has recently released financial results for the year ended 30 June 2021. Major highlights of the results are as follows:

• Completed Acquisition of Hartleys Limited: During FY21, the company completed the acquisition of Hartleys Limited, which significantly transformed the company’s scale of business.
• Rise in Brokerage Income and FUM: Due to the nine months of revenue contribution from Hartleys Limited, the company’s brokerage income for the year grew by 90% versus last year and its total FUM grew to $3.4 billion, which is 117% higher than the previous year.
• Turnaround in Profitability: NPAT for FY21 stood at $52.5 million, compared to the loss of $1.35 million, mainly due to rise in brokerage income and strong performance from Euroz Hartleys, which delivered Equity Capital Market (ECM) raisings of $2 billion in FY21.
• Debt-Free Balance Sheet: With a cash & cash equivalent of ~$96.05 million and zero debt in its balance sheet as at 30 June 2021, the company seems well placed for growth.

5-Year Financial Summary (Source: Analysis by Kalkine Group)

Track Record of Paying Consistent Dividend: Supported by decent profitability and cash generation, EZL has paid a final dividend of 13.5 cents per share for H2FY21, taking the total FY21 dividend to 16 cents per share, up ~106% on FY20. Over 43 consecutive half year periods including June 2021, the company has paid $265 million in dividends. From FY17 to FY21, the company’s dividend has grown at a CAGR of ~21.88%, demonstrating its focus on increasing dividends through growth in recurring revenue streams while maintaining traditional transaction strengths. At the CMP of $1.50, the company’s annual dividend yield stood at ~10.45%.

Dividend Trend (Source: Analysis by Kalkine Group)

Key Metrics: Gross margin for FY21 stood at 93.6%, up from 92.1% on FY20. EBITDA margin for FY21 stood at 34.2%, up from 24.1% on FY20. ROE for FY21 stood at 36.8%, up from 1.9% in FY20, demonstrating the turnaround in profitability. Current Ratio for FY21 stood at 1.52x, down from 2.58x in FY20.

Profitability Metrics (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 35.41% of the total shareholding, while the top four constitute the maximum holding. Hughes (Jay Evan Dale) and McKenzie (Andrew Neil) are holding a maximum stake in the company at 6.98% and 6.73%, respectively, as also highlighted in the chart below: 

(Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Pandemic Uncertainties: The challenges created by the COVID-19 pandemic continue to impact the market sentiments as well as the economic outlook. This could create challenge in evaluating the companies for its final advisory business.
• Fluctuations in Commodity Prices: Since the company is mainly focused on resource, energy and industrial companies, the fluctuations in the commodity prices continue to pose a risk for the company.

Outlook: As a result of the acquisition of Hartleys Limited, the company now has a combined capability and earnings leverage of Western Australia’s two most successful broking firms. Looking ahead, the company is targeting organic FUM growth and growth by acquisition. Further, the company is focused on growing and diversifying revenue streams. Currently, the outlook for Western Australian Economy is decent, supported by strong demand across business, consumer and government sectors. The outlook is also underpinned by buoyant commodity prices and concurrent royalty income growth. With its increased scale of business, the company seems well-positioned to capitalise on the positive Western Australian economy and commodities outlook.

Stock Recommendation: Over the three months, the stock has corrected by 7.27% and is currently trading lower than the average 52-week price level band of $1.1 and $2. On a TTM basis, the stock is trading at an EV/Sales multiple of 2.3x, lower than the industry median of 4.2x. Considering the company’s improved financial performance in FY21, increased scale of business, positive Western Australian economy and commodities outlook, valuation on TTM basis, technical levels mentioned below, current trading level and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $1.50, as on 11 September 2021 , 3:40 PM (GMT+10), Sydney, Eastern Australia).

Technical Note: On the daily chart, EZL’s prices are trading above the horizontal trend line support zone at $1.38 levels and prices are continuously taking support of the same. The leading indicator RSI (14-Period) is trading at 42.57 levels. An importance support level for the stock is placed at $1.28, while the resistance level is placed at ~$1.74.

Note: The purple color line in the chart shows RSI (14-period).

EZL Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: 

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

---

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.