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Company Overview: Liberty Financial Group Limited (ASX: LFG) is a financial services company and is involved in speciality lending, insurance brokering services, insurance underwriting and management of funds in the ANZ region. The Group has raised over $30 billion from domestic and international capital markets and has provided financial assistance to over 500,000 customers.
LFG Details
Upgraded NPATA Guidance on the Back of Improved Performance: The company operates mainly through the segments of Residential Finance, Secured Finance and Financial Services. It has a sustainable business model with diversified revenue streams. Average financial assets stood at ~$12 billion as of 31 December 2020 with Residential unit contributing ~72% of the asset mix, Secured Financing contributing ~26% and contribution of ~2% from the Financial Services segment.
Key Business Metrics:
Update on H1FY21 Financial Performance:
The cash position of the company improved to ~$771 million as of 31 December 2020, compared to ~$498 million as of 30 June 2020
Cash & Equivalents Trend (Source: Analysis by Kalkine Group)
Decent Traction Towards Growth:
Top 10 Shareholders: The top 10 shareholders together form around 82.46% of the total shareholding, while the top 4 constitute the maximum holding. Ma (Sherman) and Boyle (James) are holding a maximum stake in the company at 77.38% and 1.33%, respectively, as also highlighted in the chart below:
Top 10 Shareholders (Source: Analysis by Kalkine Group)
Key Metrics: The company reported an improvement in the net margin to 19.2% in H1FY21, compared to 17.2% in H1FY20. There has also been improvement in the times interest earned to 2.2x in H1FY21, from a level of 1.6x in the prior corresponding period. Debt-to-equity ratio stood at 12.13x as of 31 December 2020.
Growth Profile and Profitability Metrics (Source: Analysis by Kalkine Group)
Key Risks: The company is exposed to the following risk factors:
Outlook: The company has reported growth in loan originations and average assets and expects continued growth in revenue and earnings going forward. It plans to make a dividend distribution with the pay-out ratio to be between 40% and 80% of underlying NPAT for the H2FY21 period. It has witnessed an increase in its ROA performance and anticipates similar growth in NPATA moving ahead. The company will release its FY21 annual results on 30 August 2021.
Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: On 29 April 2021, the company has announced that it has established three new securitisations trusts for a total of $2.15 billion. As per ASX, the stock of LFG is trading below its average 52-weeks’ levels of $6.60-$8.350. The stock of LFG gave a positive return of ~2.91% in the past one week and a negative return of ~12.96% in the past six months. The stock has been valued using a P/BV multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at some premium to its industry median (Banking Services), considering the upgrade in FY21 underlying NPATA performance, optimistic outlook and stable credit rating for its corporate facilities. Considering the expected upside in valuation & current trading levels, upgrade in guidance for NPATA in FY21, improvement in NIM, cost to income ratio and optimistic outlook, we recommend a ‘Buy’ rating on the stock at the current market price of $6.94, down by ~1% (as on 23 August 2021, 10:27 AM (GMT+10), Sydney, Eastern Australia).
LFG Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.
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.
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