Pendal Group Limited

PDL Details

Funds Raised to Repay Debt and Acquisition: Pendal Group Limited (ASX: PDL) is engaged in the provision of investment management services. The company operates through two segments: investment management business in Australia (BTIM Australia) and investment management business outside Australia (BTIM UK). The company has raised $190mn by placing 27.9mn new shares (8.6% of issued capital) to the institutional investors. The new shares will be issued at $6.80 after adjusting the dividend declared on 10 May 2021 against the current price of $7.17 on 7 May 2021. The funds raised will be partly utilised for the acquisition of Thompson, Siegel &Walmsley LLC (TSW) and partly to reduce its debt. PDL will acquire TSW for an approximate consideration of US$320mn (A$413mn) with debt, equity, and existing capital of TSW.

1HFY21 Financial Highlights: The company has registered an increase in its total revenue to $276.99mn in 1HFY21 against $243.31mn in 1HFY20 on the back of higher performance fee. PDL has reported an increase in profit to $89.92mn in 1HFY21 against $54.83mn in 1HFY20. The company has seen a decline in cash and cash equivalents to $126.05mn as on 31 March 2021 against $207.48mn as on 30 September 2020.

Revenue Growth in 1HFY21 (Source: Company Reports)

Key Risks: The company is exposed to liquidity risk. The company operates in multiple countries. Any severe movement in foreign exchange prices may lead to financial losses for the company.

Outlook: With the acquisition of TSW, PDL is looking forward to enhance its Funds Under Management (FUM) and earnings. PDL is expanding its global presence mainly in the US and UK with an expectation of positive investor sentiment and robust economic outlook. 

Valuation Methodology: Price/Book Value based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, 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 PDL gave a return of ~7.07% in the last one month and a return of ~11.57% in the last three months. The current market capitalisation of PDL stands at ~$2.37bn as of 11 May 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$5.335-~$7.800. On the technical analysis front, the stock has a support level of ~$5.988 and a resistance of ~$8.527. We have valued the stock using a Price/Book Value multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer median, considering a decline in its cash and cash equivalents position as on 31 March 2021, foreign currency fluctuation threats, and associated risks with the business. For this purpose, we have taken peers Moelis Australia Ltd (ASX: MOE), Macquarie Group Ltd (ASX: MQG), Perpetual Ltd (ASX: PPT), to name a few. Considering the company has seen an increase in profit and revenue in 1HFY21, acquiring TSW for growth in its Funds Under Management, repaying debt, current trading level, and valuation, we recommend a “Hold” rating on the stock at the current market price of $7.42, up by ~1.089% as on 11 May 2021.

PDL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Cash Converters International

CCV Details

Latest Quarterly Business Update: Cash Converters International (ASX: CCV) deals with second-hand goods and operates as a financial services store in Australia. The company's financial services segment consists of the personal loans business. The company has witnessed a growth in its loan book by +8% QoQ in 3QFY21. CCV has repositioned its vehicle finance business (Green Light Auto), impacting loan origination for a short-term, though the business of vehicle finance has seen a recovery in loan origination in the later part of Q3FY21. CCV is expecting its vehicle finance to perform positively with signs of recovery in consumer demand.

Gross Loan Book Growth (Source: Company Reports)

1HFY21 Financial Highlights: The company has registered a decline in revenue to $98.42mn in 1HFY21 against $142.71mn in 1HFY20. Despite a decline in revenue, the company has posted a profit of $7.69mn in 1HFY21 against a loss of $19.39mn in 1HFY20.

Key Risks: The company requires liquidity to repay its customers, failing to which may result in a business loss for the company. Due to Covid-19 situation, lockdowns in some part of Australia still exists. This, in turn, may impact the growth and profitability of the company.

Outlook: CCV continues to improve on its risk management and compliance capabilities. The company continues to explore store acquisition opportunities for its business development. The funding for growth may be supported by its strong cash flows and balance sheet. The company continues to focus on the vehicle finance business with a recovery in consumer demand and expects to see disciplined growth, going forward.

Stock Recommendation: The stock of CCV gave a return of ~-19.64% in the last three month and a return of ~18.42% in the last six months. The current market capitalisation of CCV stands at ~$141.19mn as of 11 May 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$0.150-~$0.290. On the technical analysis front, the stock has a support level of ~$0.19 and a resistance of ~$0.289. On a TTM basis, the stock of CCV is trading at a Price/Book Value multiple of 0.4x, lower than the industry median (Specialty Retailers) of 3.0x. Considering the company has seen a turnaround with profits in 1HFY21 against losses in 1HFY20, exploring store acquisition opportunities for further growth, recovery in vehicle finance business in later part of Q3FY21, and valuation on a TTM basis, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.225 as on 11 May 2021.

CCV Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: 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.

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