Challenger Limited

CGF Details

Business Update: Challenger Limited (ASX: CGF) is an investment management firm that provides retirement services to its clients by investing in the world's public equity markets. The market capitalisation of the company as of 21 June 2021 stood at ~$3.70 billion. As per a recent announcement, the company has undertaken a change of interest in Lynch Group Holdings Limited and has a voting power of 5.64% as on 15 June 2021.

Q3FY21 Financial Performance: During the quarter, the company has recorded increased in Group assets under management (AUM) by 8% and exceeded $100 billion for the first time. The FUM grew by ~9% and includes net flows of $7 billion in Q3FY21. Total life sales surged by ~155% to ~$2,419 million in Q3FY21, compared on a pcp basis. The total annuity sales increased by ~165% to $979 million, when compared to the pcp.

Q3FY21 Life Asset Allocation (Source: Company Reports)

Outlook: Challenger has estimated normalised net profit before tax for FY21 in the lower range between $390 million and $440 million. The company strategies to build direct customer relationships and further diversify the product offering with the acquisition of MyLife MyFinance bank. 

Key Risk: Any Macro-event has a direct impact to the company’s operations as it invests in public equity markets across the globe. The company is exposed to volatility risk, COVID-19 uncertainty, liquidity risk.

Valuation Methodology: Price/Book Multiple Based Relative Valuation (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 Recommendations: As per a recent announcement, Richard Howes, the CEO and Managing Director, expect a strong profit growth in FY22, guided normalised net profit before tax of between $430 million and $480 million. The stock of CGF is trading below its average 52-weeks' levels of $3.550-$7.370. The stock of CGF gave a positive return of ~46.42% in the past nine months and a negative return of ~20.08% in the past three months. We have valued the stock using a P/B multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount to its peer average P/B (NTM trading multiple), considering the uncertainty over COVID-19 impact and volatility in the equity market. For this purpose, we have taken peers such as Navigator Global Investments Ltd (ASX: NGI), IOOF Holdings Ltd (AS: IFL), AMP Ltd (ASX: AMP), to name a few. Considering the current trading levels and expected upside in valuation levels, economic recovery, optimistic outlook, strategic integration and the key risks associated with the business, we recommend a Buy' rating on the stock at the current market price of $5.330, down by 2.738% as on 21 June 2021.

 CGF Daily Technical Chart, Data Source: REFINITIV 

QuickFee Limited

QFE Details

Change in Management: QuickFee Limited (ASX: QFE) is an online platform that provides lending solutions to businesses in Australia and the United States. The market capitalisation of the company as on 21 June 2021 stood at ~$57.77 million. The company has recently announced the transition of Bruce Coombes to the role of Managing Director and Eric Lookhoff is set to join as CEO of the firm, effective 1 July 2021.

April FY21 Financial Performance: During the month, the company has gained a strong QuickFee instalments volume in US at US$180k with a 600% hike in April FY21 against the previous month and comprises 445 and 191 merchants in the US and Australia, respectively. QFE has recorded a hike of 30% in lending to $3.5 million in April FY21, compared to the previous month of FY21. The company's US PayNow transaction volume has increased by 13% to US$76.4 million in April FY21, compared to the previous month of March FY21. 

PayNow Transactional Volume Growth (Source: Company Reports) 

Outlook: During the COVID-19 pandemic, the company has focused on diversifying into a multi-revenue payment and lending business and is well positioned for growth. QFE’s strategic investment in technology advancement, integration of payment solutions with invoicing solutions and the launch of ConnectAR could strengthen the company's operation in the future. It believes that it is on track to post growth across key areas in Q4FY21.

Key Risks: QFE is exposed to payment default risk, capital adequacy risk to finance the clients and is also exposed to COVID-19 pandemic that has impacted the company's performance. 

Stock Recommendation: As per a recent announcement, the company has entered in a term sheet with a leading global finance company, and has also appointed US investment bank D.A. Davidson to help it secure expanded funding lines. The stock of QFE is trading below its average 52-weeks' levels of $0.220-$0.975. The stock of QFE gave a negative return of ~35.80% in the past six months and a negative return of ~3.70% in the past one week. On a TTM basis, the stock of QFE is trading at a P/B multiple of 1.8x, lower than the industry average (Professional & Commercial Services) of 2.9x. Considering the valuation on TTM basis and current trading levels, robust performance in April month, economic recovery and strategic integration, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.275, up by 5.769% (as on 21 June 2021, 3:00 PM (GMT+10), Sydney, Eastern Australia).  

QFE Daily Technical Chart, Data Source: REFINITIV 

Note: Purple Color Line Refers to Momentum Oscillator Relative Strength Index - RSI (14) Period 

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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