VGI Partners Limited

VGI Details

H1FY21 Key Financial Performance: VGI Partners Limited (ASX: VGI) is an asset management company that manages portfolios of high-net-worth individuals, offices to take a long and short-term position in global listed securities.

• Improvement in FUM- The company has recorded an improved Funds Under Management (FUM) of $3.2 billion as of 30 June 2021, up 10% from $2.9 billion over the pcp.
• Decent Net Income- In FY21, it has reported a total net income of $72.2 million in H1FY21, compared to $13.59 million in H1FY20, owing to increased pro-active client engagement and improvements to content creation, CRM upgrade.
• Robust Statutory NPAT- It reported a robust statutory NPAT performance of $0 million in H1FY21 and $3.6 million in H1FY20, driven by the robust investment performance in the global and Asian strategies.
• Liquidity Positions- The cash position of the company stood at $6 million and no debt as of 30 June 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Macro Event Risk- The company’s line of business makes it prone to macro-economic risks like the present ongoing COVID-19 pandemic.
• Foreign Currency Risk- The company’s operation is to invest in the global equity market, and it is prone to foreign exchange volatility.

Outlook:

• The company focuses on disciplined risk management in the volatile market across the global market.
• It is panning for an additional investor relations and distribution team hire to drive initiatives to support the clients.
• The company is strategising to improve CRM (Customer Relationship Management) system, develop content creation capabilities and provide new services to improve client engagement.

Stock Recommendation: The company declared an interim dividend of 31.0 cents per share and implied a 50% payout ratio on normalised NPAT for H1FY21. The stock of VGI is trading below its average 52-weeks' levels of $5.780-$8.770. The stock of VGI gave a negative return of ~16.43% in the past one month and a negative return of ~30.99% in the past nine months. On a TTM basis, the stock of VGI is trading at an EV/Sales multiple of 3.8x, lower than the industry average (Investment Banking & Investment Services) of 11.3x, thus seems undervalued. Considering current trading levels, valuation on TTM basis, decent balance sheet, strategic investment in the global market, strong topline and bottom-line performance, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $5.900, as on 27 September 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

VGI Daily Technical Chart, Data Source: REFINITIV

Humm Group Limited

HUM Details

FY21 Financial Performance: Humm Group Limited (ASX: HUM) provides credit services through BNPL solutions, an interest-free payment platform with repayment options, long-term interest-free finance, and everyday spend solutions.

• Increase in Transactional Volume – The company has recorded an increase in transactional volume by 8.2% to 2,687.5 million in FY21 against $2,482.8 million in FY20, supported by the Commercial and Leasing segment up by 55.6%.
• Improvement in Key Metrics- In FY21, the company has reported an improved Active customer number by 19.7% to 2.7 million over the pcp and app downloads grew by 75.8% to $1.2 million, reflecting the growth across existing core products and momentum from new products, bundll and hummpro
• Robust Bottom-line growth- It has incurred a robust statutory NPAT of $1 million in FY21, up 160.2% from $23.1 million in FY20.
• Decline in net Operating Income- The company has reported a decline in net operating income by 5% to $9 million in FY21 vs $361.0 million in FY20, partially offset by lower interest expense of $15.1m due to lower costs of funds.
• Liquidity Position- At the end of the period, the company's strong cash position stood at $2 million as of 30 June 2021, increased from $157.5 million in FY20.

Total Receivables (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The economic slowdown that leads to mounting in NPA’s that could impact the company’s earning and still, the uncertainty prevails.
• Liquidity Risk- The company requires sufficient liquidity to meet its financial obligations, operational activity, offer more lending to clients and mitigate the working capital risks.

Outlook:

• The company continues to focus on building customer base and distribution reach through partnership for its innovative products.
• The company expects from its strategic partnership with a major bank, loyalty program, retailers, and issuer to significantly contribute to customer numbers and target to deliver 250k additional customers by FY22.
• It is well progressed to launch Humm Canada in H1FY22 and expected the attractive market with strong existing relationships and add ~$150m in volumes in FY22. 
  

Valuation Methodology: EV/Sales 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 company recorded a return on equity of 9% in FY21, compared to 3.6% in FY20 that depicts the strong earning with efficient usage of equity capital. The stock of HUM is trading below its average 52-weeks' levels of $0.780-$1.360. The stock of HUM gave a positive return of ~2.40% in the past one week and a negative return of ~15.42% in the past one year. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers' average EV/Sales multiple, considering the economic slowdown due to the COVID-19 pandemic and increase in EBITDA margin. For the purpose of valuation, peers such as Money3 Corp Ltd (ASX: MNY), Zip Co Ltd (ASX: Z1P), Latitude Group Holdings Ltd (ASX: LFS) have been considered. Considering the current trading levels, indicative upside in valuation, decent balance sheet, strategic collaboration, enhancing its footprint, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.830 as on 27 September 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

HUM 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.

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