Section 1: Company Overview and Fundamentals Insights

1.1 Company Overview

Solvar Limited (ASX: SVR) is an Australia-based consumer and commercial finance company. The company specializes in the provision of finance and other related services to assist consumers with the purchase of a new or used vehicle, as well as offering unsecured personal loans to consumers.

 1.2 The Key Positives, Negatives, Investment Highlights, and Risks

1.3 Top 10 Shareholders: The top 10 shareholders together form ~38.66% of the total shareholding. Thorney Investment Group and Dimensional Fund Advisors, L.P. are holding a maximum stake in the company at ~12.03% and ~5.17%, respectively.

1.4 Key Metrics: The company reported an improvement in net margin in FY22 to 27.5% compared to 27.0% in FY21. Further, the current ratio increased to 5.70x in FY22 relative to 3.79x in FY21. Below is captured the trend of the gross margin and return on equity:

Section 2: Business Updates, Financial and Operational Highlights

2.1 Recent Updates:

2.2 Results Highlights of FY22 (for the period ended 30 June 2022): During FY22, the company reported 22.4% YoY growth in statutory EBITDA to AUD 99.0mn compared to AUD 80.9mn in FY21. Further, the company has written around ~31k new loans during FY22, underpinning 17.2% YoY growth.

2.3 Operational Update: The company continues to capture the market share by adopting an agile pricing strategy that helps in driving profitability.    

2.4 Dividend History: The company paid a dividend of AU 13.00 cents during FY22, which increased from AU 10.00 cents in FY21, while from the period FY17 to FY22, the dividend increased at a CAGR of 18.1%.   

Section 3: Key Risks and Outlook:

Section 4: Stock Recommendation Summary

4.1 Price Performance and Technical Summary

4.2 Fundamental Valuation

Valuation Methodology: P/B Multiple Based Relative Valuation (Illustrative)

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

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is February 2, 2023. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above. 

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

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

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