Company Overview: Resimac Group Ltd (ASX: RMC) is a leading non-bank lender and operates a multi-channel distribution business. The company’s fully integrated business model comprises originating, servicing, and funding prime, non-conforming residential mortgages and asset finance products in Australia and New Zealand.

RMC Details

Market-leading Products and Funding Programs Aided Business Growth: During the half-year ended 31 December 2021, the company’s business witnessed exceptional growth, evident by the record home loan settlement of $3.5 billion. On the back of market-leading products in its specialist segment, home loan assets under management rose by 13% against 30 June 2021. RMC’s global funding program continues to provide the business with the platform and flexibility to take market share to available opportunities. During the half, the company issued $3.8 billion of prime and non-conforming RMBS, originated new low margin warehouse facilities, and issued $50 million of debt securities to aid growth in home loans and asset finance businesses. The company believes that it is in a decent position to navigate any potential changes in the macroeconomic environment on the back of its portfolio quality and balance sheet strength.

Insights of 1HFY22: During 1HFY22, the Asset Finance division has grown at a decent pace and asset finance settlements stood at $200 million.

Financial Summary (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 9.98% of the total shareholding, while the top 4 constitute the maximum holding. Motrose Proprietary Ltd. and McLeland (Warren John) are holding a maximum stake in the company at ~3.56% and ~2.97%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics:  During 1HFY22, the debt-to-equity ratio improved to 42.87x against 46.93x in 1HFY21. In addition, the asset to equity ratio stood at 44.09x as compared to 48.61x in 1HFY21.

Leverage & NII Profile (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Led Uncertainties: RMC’s operational and financial performance could be impacted by uncertainties in relation to the COVID-19 pandemic.
• Capital and Liquidity Risk: The company is required to maintain enough liquidity levels under Australian Financial Services Licence requirements as it operates in the lending business
• Regulatory Risk: RMC is exposed to a more complex regulatory environment; any failure in the compliances could lead the business to fines, penalties etc.

Outlook: Considering rising fixed-rate home loan pricing and growth in market share in the asset finance segment, the company is optimistic about growth opportunities in all the segments. RMC has invested in a new loan origination system for its Asset Finance division, which is likely to go live in Q1FY23. The same is likely to aid the company’s next phase of growth. By FY24, the company is aiming for home loan settlements of $3.5 billion and Asset Finance settlements of $1 billion. The company intends to launch a new core banking platform in NZ with AU going live in mid-2022. This may provide enhanced customer banking functionality. With respect to Asset Finance, the company is optimistic about the addressable market opportunity of over $120 billion.

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: The stock of RMC is trading below its 52-week low-high average of $1.365 - $2.540, respectively. The stock corrected by ~8.68% in the past month. 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 a slight premium to its peers, considering the growth in FUM and increasing fixed-rate home loan pricing etc. For valuation, a few peers like Genworth Mortgage Insurance Australia Ltd (ASX: GMA), Australian Finance Group Ltd (ASX: AFG), Pepper Money Ltd (ASX: PPM), and others have been considered. Considering the expected upside in valuation, growth in the asset finance business, rising home loan settlements, increasing fixed-rate home loan pricing, rising bottom-line, current trading levels and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $1.525, up by ~0.660% as on 16 May 2022.

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

RMC 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 for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Technical Indicators Defined:

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

Resistance: A level where-in stock prices tend to find resistance when they are rising, and a 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 unless those persons comply with certain safeguards, procedures, and disclosures.

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.